By Justin Griffiths on 16/12/2022
As for most sectors, it has been a turbulent year for real estate.
The impacts of surging inflation and interest rate hikes have been keenly felt – with the cost of capital up and pressure on valuations. While we hope global monetary policies will begin to ease as 2023 progresses, these two driving forces will continue to dominate the news agenda.
On the residential side, housebuilders have been impacted by affordability concerns. The recent round of trading updates showed a clear slowdown in private sales rates and an increase in cancellations. Regardless of near-term headwinds, however, the fact remains that the UK suffers from a structural undersupply of homes – and this will continue to drive demand in the longer term. Those firms in the affordable housing space are likely to demonstrate far greater resilience in the near term given the countercyclical dynamics of that market. We will soon see whether overall demand has bounced back when we enter the all-important selling season next spring.
Across key commercial sectors – including offices and retail – we’ve witnessed a clear ‘flight to quality’ over the last year, which we expect to persist. With the increased costs of living and doing business providing a challenging backdrop, prime assets are proving to be pockets of resilience, which is reflected in rental growth and healthy occupancy.
Across both sectors, debates around the integration of physical and digital strategies continue to play out. We remain somewhat in a state of flux here, with the rise of working from home and e-commerce continuing to pose searching questions for the industry. It will be those who clearly communicate the continued value of physical assets – and their evolved role – who come out on top.
We also expect to see even greater focus on ESG and sustainability over the next year. During 2022, we saw some brilliant innovation across the sector, from the launch of zero carbon, zero energy bills homes to London’s tallest mass timber office building. But companies will also need to be ever more innovative in their communications to stand out in what is a very crowded space.
The political environment was undoubtedly volatile this year – we saw three Prime Ministers, four Chancellors and three Housing and Planning Ministers. However, we end the year with some certainty at least. While the government has kicked planning reform into the long grass, we will see greater devolution – leading to more powers for local mayors and authorities – through the Levelling up and Regeneration Bill. This major piece of legislation will be the blueprint upon which the next general election will be fought. 2023 presents a clear chance for the sector to engage with both government and opposition and to help shape the policy agenda for the rest of the decade.
Despite the economic and political uncertainty of this past year, there is genuine cause for optimism. We expect 2023 to once again prove the sector’s resilience, whatever else is thrown its way.
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