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UK Real Estate Market View


As we move through 2022, here is our summary of current conditions in the UK.

Infections in the UK are at the lowest levels seen since early December and are now comparable to the levels seen before the first Omicron variant became widespread. Around 93% of people aged 12 and over have now received a first dose of a vaccine. All remaining Covid restrictions in the UK have been lifted, although the Government continues to advise wearing a mask in crowded or enclosed spaces. We expect this to contribute to increased business and tourist activity.

GDP is estimated to have fallen by 0.1% in March 2022, although first quarter growth was 0.8% and the economy is now 1.2% above its pre-COVID-19 level. The fall in GDP was led by a 0.2% fall in output from Britain’s dominant Services sector. We expect the economy to come under further pressure as the war in the Ukraine and the increased cost of living weighs on growth.

Job vacancies in the UK in the period from February to April rose to 1.30m, and an increase of 499,300 from the pre-pandemic levels in January to March 2020. The UK employment rate was estimated at 75.7%, 0.1% higher than the previous three-month period, although 0.9% lower than before the pandemic. However, the unemployment rate fell further to 3.7%, 0.2% lower than before the pandemic.

CPI inflation rose by 9% in the 12 months to April 2022, up from 7% in March, driven primarily by the rising global price of energy. This is the fastest rate of inflation growth for 30 years. Is high inflation a problem for real estate? One should always look at inflation and GDP together, never in isolation. Real estate does well when GDP growth is strong, despite spikes in inflation. 

Real Estate
The take-up of office space is strengthening across all the UK regions, although office occupancy levels are still recovering. Strong occupier and investor sentiment remain evident in the logistics sector, with the UK experiencing the highest rental growth year-on-year in Europe in 2021. Q1 2022 saw the highest investment turnover of any first quarter since 2015, although a lack of available stock continues to leave some demand unsatisfied. We expect to see further yield compression for both office and logistics in 2022, driven by continuing strong demand for prime assets.


07 April

Infections in the UK are approaching a record high, although 92% of people aged 12 and over have now received a first dose of a vaccine. Most of the remaining Covid restrictions in the UK have ended, in particular those governing international arrivals into the UK. We expect this to contribute to increased business and tourist activity.

GDP bounced back in January after the easing of Covid restrictions. The UK economy is now 0.8% above its pre-pandemic level; all sectors contributed to the growth although Services were the main driver contributing 0.6 percentage points. We expect to see the recovery strengthen as we move through 2022.

Job vacancies in the UK rose to 1.32m, a new record although the UK employment rate remained slightly below its pre-pandemic level at 75.6%. Workforce jobs increased in seven out of 12 regions of the UK; London saw a 7.5% increase in pay rolled employees, the largest year-on-year increase of any UK region. The largest sector increase (of almost 8%) was in accommodation and food services as businesses hired back employees, although the information and communication sector, which includes tech, grew by 4.8% over the last 12 months.

Prices rose by 6.2% in the 12 months to February 2022, driven primarily by the rising global price of energy. This is the fastest rate of inflation growth for 30 years. Inflation is likely to stay high in 2022. Is high inflation a problem for real estate? One should always look at inflation and GDP together, never in isolation. Real estate does well when GDP growth is strong, despite spikes in inflation. 

Real Estate
While the return to work continues, office occupancy rates remain below 30%. However, the take-up of office space is strengthening across all the UK regions. Strong occupier and investor sentiment remain evident in the logistics sector, with the UK experiencing the highest rental growth year-on-year in Europe in 2021. Total investment turnover rose by 12% over the course of 2021 although activity across all sectors remains hampered by a lack of available stock. We expect to see further yield compression for both office and logistics in 2022, driven by continuing strong demand for prime assets.


11 January

With 2022 underway, our attentions turn to the year ahead. Here is the breakdown of our outlook.

This year starts with the same uncertainties as the start of 2021, given the elevated levels of Covid cases. But this time, the UK has advanced its infrastructure - testing, vaccinations, and healthcare - and has precedent for extending or expanding Government support when needed.

We are expecting a slow start to the year, then growth should get back on track, ending the year around 5% higher than it began. The UK economy is nearly back to pre-pandemic levels, and parts of the economy are already higher. So, in 2022, our mentality will shift from “have we recovered yet?” to “which parts of the economy are seeing fresh growth?”

There are 1.2m vacant jobs in the UK - an all-time high. Sectors like health and social work, and professional, scientific, and technical activities already have more people in work today than pre-pandemic. Others, like retail and entertainment are trying to hire back lost jobs. The resulting disparity in wage growth across sectors is likely to worsen inequality among households.

Inflation is likely to stay high in 2022. There are many supply chain issues exacerbated by the Omicron spike. Is high inflation a problem for real estate? One should always look at inflation and GDP together, never in isolation. Real estate does well when GDP growth is strong, despite spikes in inflation. Stagflation - high inflation and low growth - would be an issue, but that is not something we forecast.

Real Estate
Industrial returns stood at close to 35% year-on-year at the end of 2021. That’s close to six years’ worth of typical annual returns in one year. Returns will slow as assets look closer to fully priced. Retail warehousing with values underpinned by logistics as an alternative use will also ride the logistics wave. Life sciences, data centres and film studios are in high demand, although they lack sufficient scale for many investors. Prime office yields fell in most UK markets at the end of 2021 and are likely to see further small falls this year.

Measures to protect commercial tenants from eviction will end on 25 March 2022. Although many businesses are in a stronger position than in 2020, rental defaults and evictions are likely to be a key feature of the market in 2022.


23 September

When do you go into the office? The big assumption was that we would prefer to be in the office mid-week but stay home on Monday and Friday. Surveys confirmed our collective intentions and occupiers started to plan accordingly. However, google mobility data for the UK shows what we intend is not always what happens. We might plan to work in the office Tuesday-Thursday, but data suggests we go into the office on Fridays too. In fact, Friday has proven to be the most popular office day, especially over the summer as bars and restaurants have opened. The lure of socialising with colleagues or family and friends after work on a Friday has been strong. But Fridays also have the potential to be the quietest day, especially around bank holidays.

Another surprise has been how often we abandon our plan to go into the office on Tuesday, which has been one of the least popular days so far. Perhaps we’ve looked at our workloads on a Tuesday morning and thought “one more day at home to clear the to-do list”? 

For occupiers, the real work week is just as complex as the theoretical one. Can you plan for lots of dropouts on Tuesdays and highly volatile Friday capacities? Workplace travel has been hard to predict since restrictions eased from March, but we will soon settle into new habits: perhaps a solid commitment to Wednesdays and Thursdays and a last-minute decision about Tuesdays and Fridays will become typical.

For occupiers and landlords: is your office somewhere workers would want to be on a Friday afternoon? What about the surrounding area? These are particularly pertinent questions in London where workplace travel has been at lower levels in general but more likely to peak on a Friday than elsewhere in the UK. If your office is busiest on a Friday, perhaps you’re getting it right, and vice versa: is that the new test of corporate culture and engagement? 


08 September

The job market is unrecognisable to how it looked only six months ago. More people are working, earnings are up in every sector, the claimant count has fallen, and productivity is up. 

Moreover, companies are trying to hire at a record pace. Almost 840 thousand service sector jobs are available. In retail, hospitality, arts and entertainment there are 270 thousand vacancies. Filling them will kick-start the sectors’ recoveries, following their loss of 650 thousand jobs since the pandemic began. Meanwhile, health and social care, science and tech sectors have gained jobs during the pandemic and are looking for more recruits - companies need to fill over 300 thousand new roles. As for the other service sectors, a full recovery is possible if companies fill their current vacancies.

Friction in the labour market could reduce the polarisation the pandemic has caused. People with customer-facing experience will fill the available retail and leisure roles quickly. The difficulty will come in the healthcare and science sectors, which risk a skills shortage.

Given the pace of hiring, we should assume the lag from economic recovery to improved real estate demand is shorter than usual. Companies have already made the call that they need to grow. Many are growing beyond their pre-Covid levels and the health, science and tech sectors are leading the way.

15 Oct

The latest Government announcements mean we are now living in a three-tier society. 

‘Medium’ risk areas continue with the current national measures. ‘High’ risk areas will adopt stricter measures focused on curbing household-to-household transmission. Many areas already have these restrictions in place, but local authorities will now apply the restrictions consistently.

As a minimum, restrictions in ‘Very High’ risk areas will: 

  • prohibit households from mixing indoors or outdoors 
  • apply the Rule of Six in public spaces 
  • make bars and pubs operate like a restaurant by only offering a seated meal service

Restrictions could extend to closing leisure facilities.  

What does this mean for real estate? There are two positives. The Government has simplified the mess of local restrictions to three tiers. And the framework states that non-essential retail will remain open in all levels, as would offices and warehouses.  

The shift from national to local restrictions is complete; however, the shift from national to local fiscal support is missing. This mismatch has already caused tension between central and local government. Businesses in the ‘Very High’ tier will need more support to limit the short-term economic impact of the extra restrictions and give their respective real estate markets a chance to recover in line with the rest of the country.   

22 July

After analysing leases in over 31,000 properties, Remit Consulting found less than half of tenants paid their rent on time on June Quarter Day. Such low collection rates could leave the properties’ owners with a £943m income shortfall by the end of the quarter.  

That landlords only collected 38% of rent on the due date was no surprise. As expected, collection rates were lower than the poor rates achieved in the quarter before. Lockdown was in place throughout the second quarter, hindering trading for most businesses. 

However, the large amount of rent collected the week after the due date was surprising. Office rent collection rates improved from 53% on the due date to 71% seven days later, and industrial’s rates improved from 43% to 56%. Retail still lagged with rates at 36% on the due date, rising to 42% seven days later. 

These rates are still low. But the increase in rent collected throughout July should encourage landlords to continue to work with their tenants to secure what income they can for now, deferring the rest. With the Government easing restrictions since June, and more easing scheduled in August, tenants should be over the worst and rent collection rates should start getting back to normal. 


8 June

The investment market is functioning again. Some sellers have resumed talks with the buyers they lined up before lockdown began. And new, post-lockdown deals will bolster the pipeline as more properties open and investor tours get underway.  

Given that foreign investment has been around half of total volumes in recent years, the next question is not of market functionality but capacity: could travel restrictions - enforced by governments or businesses - curtail investment volumes?  

This question has become more pertinent since the Government began to enforce a two-week quarantine for anyone arriving to the UK on or after 8 June. However, many foreign investors have offices and staff based in the UK: London, especially.  

It is hard to determine how many deals could complete without participants travelling to the UK, but we can use past deals to give our answer some scale. Investors bought over £189bn of real estate over the last 3 years and £89bn was foreign investment. Within the foreign investor share, over £46bn of investment was by foreign investors with a UK office.  

So, just over a fifth of all investment might have needed international travel. We might have overstated this share - we might have missed that some smaller investors have local staff, or share an office with affiliates, and some investors might have invested through a separate account with a local manager. Even so, this basic exercise helps show that barriers to international travel shouldn’t limit investment.  

3 June

While many offices in the UK have reopened, companies might still need most of their employees to work from home while social distancing rules are in place. Enough time has passed to see how this arrangement has affected productivity, corporate culture and employee wellbeing. Our new report ‘The Future of Workplace’ outlines the new trends. 

The report shows that people have been as productive as they were before the crisis and have increased their teamwork thanks to calls, virtual meetings and collaborating on documents in real time. 

However, the lack of face-to-face contact is taking its toll on people’s ability to learn and train, and their connection with their company and its culture has weakened. More than half of respondents reported a challenge to working from home. For most, sub-par connectivity was the main issue. Younger people were more likely to have problems with inadequate workspace and families often struggled with childcare.

Despite these issues, 73% of respondents believed their company should embrace some level of working from home. Companies will inevitably review their workplaces - office and home, physical and virtual - because of their ongoing work-from-home experiments.  

These changes will give offices a new purpose as a destination for innovation and learning, and they will empower employees to make their own choices - focus at home or collaborate in the office. 


21 May

Despite confusion around phases, steps, measures and alert levels, there are two clear points in the Government’s plans. First, the Government has started to relax restrictions on households and businesses but will reverse those decisions if the virus threatens to spread. Second, these decisions will dictate our normality until the Government can distribute reliable treatments or vaccines - that could take months, a year or more. 

Property types fall into a new hierarchy of transmission risk while this phase continues. Many lower-risk workplaces, including offices and industrial properties, and essential retail businesses are already open and other retail businesses could open in phases from 1 June. The higher transmission risks associated with hospitality and leisure use mean restrictions on these properties are tougher and could change more often. 

Regardless of changing business restrictions, social distancing will remain throughout this phase. And so, we need new and innovative approaches to how we can use space safely. Every property will have to adapt to earn the right to open and remain open if the risk of a second wave of cases increases. 

For now, this situation creates more questions than answers. Could one adapt a property in a high-risk category enough for the Government to consider it low risk? Will investors price in the risk that restrictions pose to a property’s operation, and will that risk premium be temporary? 


14 May

Few people would expect a record high from the first quarter’s investment stats, but we got one: the average transaction value for property in the UK was £46m. The number of deals, however, was at an eight-year low. Taken together, investors have shied away from smaller deals but stayed committed to their biggest opportunities.  

Why did the big deals survive? Big deals are often key to an investor’s long-term strategy - a move into healthcare or logistics, for example - and investors still strive for those goals.  

Buyers need the same prudence when buying a £5m property as a £500m portfolio and many lacked the bandwidth to consider smaller deals while in crisis-mode - even the perfect £5m property isn’t going to move the needle. 

How investors raised capital reflects how they are spending it. Preqin confirmed that global fund raising for real estate in 2019 exceeded $150bn for the first time, but only 295 funds closed - the lowest number in a decade. Buyers are getting bigger and they need bigger deals. 

The total transaction value was £11bn, not bad for a first quarter. This total excludes Blackstone’s £4.7bn purchase of student housing group IQ, which would become the largest UK transaction ever recorded once it gains regulatory approval. 

Volumes will fall in the second quarter, but the popularity of prime assets and high-quality portfolios should keep the average transaction value high. The needle still needs to move. 


7 May

With all data collected, our review of leasing activity in the first quarter of 2020 can begin. 

Occupiers looking for new space were highly active in the first months of the year, but by March it had become difficult for lease deals to progress. For example, leasing volumes were 20% below average for office space in London at the end of the first quarter, but the amount of space under offer was 28% above average. 

We saw a similar picture across the UK: occupiers had cancelled or put on hold only 10% of potential office take-up, while ongoing talks spilled over into the second quarter keeping live demand steady at 16 million square feet. The main concern is that new enquiries for office space have become increasingly rare since lockdown began. 

Occupiers of any type of space, including retail and industrial, have struggled to secure the space they need within usual timeframes. Take-up of industrial space was 32% below average in the first quarter, despite many occupiers needing to fulfil more online orders and store more goods, especially near ports. At least for now, these needs have triggered new enquiries for logistics space on short-term leases. 


30 April

On 27 April, Prime Minister Boris Johnson said the UK is close to completing the first phase of its fight against COVID-19. The virus has not overwhelmed the National Health Service (NHS) and hospital patient numbers are falling consistently.  

But the UK is now at the point of ‘maximum risk’ according to the Prime Minister. The Government will ‘refine economic and social restrictions’ to reopen parts of the economy, while managing the risk of a second spike. 

Businesses must prepare for the next phase of the Government’s action plan. We think business recovery plans should cover six key points

  1. Prepare the building: Clean, inspect and complete HVAC and mechanical checks 
  2. Prepare the workforce: New return-to-work policies. Decide who returns to work and when 
  3. Control access: New health and safety protocols for visitors, communal areas and deliveries 
  4. Social distancing plan: Decrease density, new office traffic patterns and worker schedules 
  5. Reduce touch points, increase cleaning: Touchless entry and exit, a stricter clean desk policy, new food plan and frequent cleaning 
  6. Communicate: Be transparent and survey staff regularly 

With millions of people already back to work in other countries, the lessons for UK businesses are to plan early and communicate that plan to staff clearly.  If this is the point of maximum risk, now is the time to get your plans in place.  Find out how with our Recovery Readiness Guide.

23 April

Thanks to new mobility reports from Google External Link, we can see how our behaviour changed as the COVID-19 crisis took hold. 

Our use of transport hubs lessened from 9 March – that was when Italy’s lockdown began, and the UK Foreign Office issued travel restrictions. The Prime Minister urged us to stay at home in his press conference on 16 March and we then made fewer trips to work, shops and leisure facilities. 

When journalists reported the Government’s ‘shielding plan for London’ on 18 March, we saw a spike in Google searches for ‘lockdown’ and grocery and pharmacy trips rose, as people stockpiled essential goods. 

Our behaviour started to change before lockdown. More importantly, the data shows we are still happy to go out if social distancing is possible and in our control. Park use has been close to normal on sunny weekends. 

Thankfully, the stockpiling crowds haven’t returned. But grocery and pharmacy trips are now down about one third on the pre- COVID-19 baseline. So even though we can go to the supermarket, we don’t go as often – this is a good guide for other retail once lockdown is over. 

Workplace trips are down 57% on the pre-COVID-19 baseline. All workplaces will have to adapt to ensure people can keep their distance. Our Six Feet Office concept for workplaces are a solution to the challenge of getting people back to work safely. 


16 April

Construction companies are re-opening sites to avoid further delays and disruption.  

Many companies stopped work on their sites when the Government announced its three-week lockdown on 23 March 2020. But the Government is likely to extend the lockdown period prompting construction companies to change their procedures to safely re-open sites in current conditions.  

Over 9 million square feet of office space should complete this year in central London and around two-thirds is pre-let or under offer. Delays to restarted projects are still likely, as finding materials and labour is difficult. And for some sites, supply chain constraints might prevent re-opening altogether. 

Occupiers due to move into a new property have a nervous wait to see if they need to find temporary space or extend their current lease, if possible, until their new space is available. The race is on to complete construction and avoid this large-scale leasing problem.  

While there is very little retail space due to complete, over 4 million square feet of industrial space was under construction before the COVID-19 crisis began. Some large schemes planned for 2020, such as Goodman Bedford, Magna Park South and Wakefield 515, might not complete until 2021 even if their construction recently started. 


9 April

For most tenants, rent was due on 25 March. But it has taken the last 2 weeks to get a clear picture of how much rent tenants paid.  

Many UK REITs issued COVID-19-related press releases to confirm their rent collection rates. For some, rates were as low as 30-40% after 1 or 2 working days after quarter-end.   

Retail was the most affected sector. However, most REITs reported that their collection rates were 60-70% after 7 working days. REITs with more prime offices and logistics in their portfolios had higher rates.  

Our view on the ground has been: 

  • Rent collection rates were down by around 20-25% on normal Working Day Seven expectations 
  • Service charge collection rates were down by around 15-20% on normal Working Day Seven expectations 

In addition, some landlords and tenants have agreed to switch to monthly payments or defer payments.  

Overall, the COVID-19 crisis has affected the cashflow of most properties, regardless of sector. But collection rates have slowly risen, and will continue to rise, confirming that landlords and tenants have successfully found a new balance between short-term obligations and long-term stability. 

2 April

The new measures announced by the Government and the Bank of England give the UK real estate market a vital safety net. 
The Bank of England will buy £200 billion of assets, mainly Government bonds, to stimulate spending in the economy. The Treasury has pledged over £30 billion of measures to protect businesses and households and will defer £30 billion of taxes. Further, these institutions will coordinate to deliver lending schemes with £330 billion of funds.

It is too early to see what impact the crisis has had on real estate investment, but there have been some changes in the occupier markets. Active requirements for larger office space are stable, and 25% of all active requirements in London are above 50,000 square feet. But requirements for smaller amounts of office space have already fallen. 

Conversely, requirements for small amounts of logistics space have risen, as the surge in online retail has increased tenants’ needs for flexibility. Although supermarkets are among the few stores the Government allows to open, the grocery sector has experienced unprecedented demand for home delivery. 

The industrial market’s gain is retail’s loss. Retail landlords and tenants need to find the right balance between ensuring tenants’ solvency and honouring rent payments as quarter and month-end rent payments are due. 

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