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UK Property Market Context 2022.

Updated: Apr 19

The UK property investment market offers attractive opportunities across most sectors. The all-property total return has returned to very strong growth after the pandemic shock, as recorded by the MSCI UK Quarterly Property Digest.

The weakest or most complex sectors are retail and shopping centres, which have an uncertain short and medium term future. The most opportunity is highlighted in warehousing, industrial sectors, retail warehouses. Hotels, leisure, healthcare and data centres may offer additional sectors of interest.

Retail Market Opportunity

The pandemic has caused retail capital values to fall. Investment in high street retail and shopping centres has collapsed. Commercial tenants are terminating or abandoning their leases due to negative outlook.

This presents a tremendous buying opportunity at a discount for a medium- or long-term investor. CBRE are forecasting 2022 to have a flurry of investment activity into retail due to discounted prices, and highlights opportunity in repurposing retail units to alternative uses.

Capital values are appreciating as population growth and London commuters creep further and further south. Key areas Reading, Basingstoke, Kingston, Croydon, Brighton, Portsmouth, Winchester, Southampton. Surrey strong overall in context of wider UK. We see tremendous opportunity in London, Surrey and whole of South East. This applies to residential and retail repurposing investments.

Commercial sector re-emerging promising high returns

Research conducted by Savills predicts raising upward pressure of demand and pricing for value-add assets. This presents a tremendous opportunity to identify and convert underused commercial real estate to take advantage of the property cycle.

Occupier demand is bouncing back for retail, industrial and offices, but the capital value expectations are lagging well behind for secondary offices and secondary retail. Most property professionals feel we are in the early upturn of the market.

Biggest Challenges Affecting Commercial Real Estate

Like many industries, commercial real estate in the UK has been badly affected by Covid-19. Some behavioural changes relating to the shifting landscape in the real estate market are here to stay. We believe that only the most flexible and adaptive operators will be able to navigate these new waters. Here are some of the main challenges that industry stakeholders face in the new normal:

Demand for many types of space has gone down. This has created an unprecedented cash and occupancy crisis for the real estate industry. As a result, landlords are taking control of cash management to focus on getting better yields from diversifying their portfolios. Across the industry, operators have begun to feel a greater sense of urgency than before to digitise and provide a better tenant and customer experience.

Developers can’t obtain permits and they face construction delays, stoppages, and ever shrinking rates of return.

Asset owners and operators face drastically reduced operating income, and everyone in the value chain is nervous about how their tenants will manage to honour rental payments.

The pandemic experience has permanently changed habits that may affect demand for other real estate assets, such as hospitality properties and long-term leases.

This has opened up the opportunity for investments into smaller retail units, and other low-entry investments that ensure liquidity.

Issues Facing The Overseas Investor

It is hard enough managing a real estate portfolio in-country, but it is even more challenging for overseas investors, who make up a significant portion of asset owners. Here are some of the challenges that overseas investors face:

As we say, though, it’s difficult to make solid predictions within the context of a pandemic. It’s important to remember that whether or not house prices rise or fall this year depends on a number of factors, not least coronavirus and the impact it may continue to have on the economy.

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