State of the market: Insights from Bisnow’s Women Leading Real Estate conference

On 28 November 2024, lawyers from our real estate team had the pleasure of attending Bisnow’s Women Leading Real Estate conference, where some of the most influential professionals in the UK real estate industry came together. It was a day filled with insightful discussions about the current market landscape and future trends. Below are some of the key takeaways from the event.

Investment focus: duration and income

Joanne McNamara from Oxford Properties Group shared some fascinating insights into the evolving priorities of real estate investors. She emphasised that in today’s UK market, there’s a strong shift towards long-term stability and reliable income streams. With economic uncertainty and rising interest rates, investors are increasingly drawn to assets that promise consistent revenue.

Distressed market and investment opportunities

Safinaz Zakaria from Crosstree provided a sobering yet insightful perspective on the distressed real estate market. She noted that transaction volumes have plummeted to levels even lower than those during the peak of the 2008 Global Financial Crisis. This significant drop reflects the broader market uncertainty, and the challenges sellers are facing. However, Safinaz also mentioned a silver lining: Crosstree’s pipeline has started to grow for the first time in two years. This could indicate a move towards a more balanced market, potentially offering better opportunities for both buyers and sellers in the near future.

Key market trends

Several broader themes emerged from the discussions:

Planning reform

Everyone is struggling with the current planning system, which is hindering growth. The average time frame to get to the Planning Committee stage is 48 months which has doubled in the last two years. Streamlining and simplifying the planning process is essential to attract investors and maintain pace in development. There’s also a pressing need to regulate planning for data centres to meet the growing demand for digital infrastructure.

Sector-specific insights

• Office Market: The office sector is experiencing the most distress, reflecting challenges in adapting to hybrid work models and changing tenant demands.
• Retail Sector: Rita-Rose Gagné of Hammerson shared her optimistic outlook on retail, highlighting the potential for £9 billion of investment in technology over the next decade to revitalise the sector. She believes that with the right strategies, retail spaces can thrive as brands increasingly value physical connections. Rita shared statistics showing that physical shopping is still preferred among the public to online shopping, despite a wider belief that going to the shops is a thing of the past.
• Residential: The residential sector remains robust, supported by strong interest in both rental and owner-occupied properties.
• Logistics: There’s a rising demand for logistics spaces due to the growth of e-commerce and changing work patterns.

Sustainability and ESG

Retrofitting buildings to meet ESG standards remains a critical focus, but it requires higher rents to justify the substantial investment needed. Achieving net zero goals is proving more challenging than previously anticipated in real estate. Asset managers are exploring multiple avenues of investment to ensure strong returns while meeting sustainability targets. Investors are also assessing the nature of occupiers and whether their operations align with ESG requirements, especially when investment opportunities are in a wider community setting.

Private equity investment

Over £6.5 billion of private equity was invested into UK real estate in the last year, reflecting continued interest despite market uncertainties.

Infrastructure and city living

Rita-Rose Gagne gave an interesting perspective on how investors need to view real estate holistically and as a ‘built environment’. There has been a shift in the market and consumers want their living, work and social spaces to be integrated and not for the spaces to be viewed as singular. The infrastructure and fabric of cities are blending into living concepts, creating opportunities for innovative developments that cater to modern urban lifestyles. This has been highlighted through the investment and building of multi purpose and whole-workspaces as opposed to sole office blocks, to fuel the idea of a built environment and community assets. However, these projects often face significant planning hurdles, emphasising the need for reform.

Further, construction costs continue to rise due to a general shortage of labour. Creating spaces that contain both residential and commercial development requires robustness in terms of delivery, and uncertainty around this can be an issue, particularly when delays to the planning process are factored in which due to the passage of time can cause further uncertainty in terms of construction costs.

What can be done to simplify UK investment?

A recurring question at the conference was: “What’s one thing you would change to make UK investment easier?” Responses included:

• Planning Reform: Make it simpler and less risky.
• Collaborate with Local Authorities: Work together to build better places.
• Sovereign Wealth Fund: Establish a UK-based fund to drive domestic investment.
• Diversity of Ideas: Continue developing diverse perspectives within the real estate sector.

Conclusion

The UK real estate market is at a crossroads, marked by both challenges and opportunities. Investors are focusing on long-term, income-generating properties, with a keen interest in value-add assets. While the distressed market remains subdued, the narrowing bid-ask spread and the capital waiting to be deployed suggest that opportunities are on the horizon. With continued demand for logistics and residential properties, and a growing emphasis on ESG compliance, the future of the market will require flexibility and strategic foresight from all stakeholders. Planning reform and innovative collaboration will be critical to unlocking the sector’s full potential.