In keeping with annual tradition, Property Week published its usual predictions feature in the first Property Week magazine of the year, with leading industry figures providing their views on what 2016 has in store for the property sector.
As expected, the feature covered a number of macro themes including the ‘Brexit’, the London Mayoral election and devolution. Other topics included business rates, the planning system, the future of retail, and the residential market, in addition to debate as to whether we have now reached the top of the market.
Redwood Consulting worked hard to ensure that comment from nine separate clients was secured in Property Week’s 2016 feature. Spokespeople from M&G Real Estate, Schroder UK Real Estate Fund, Hermes Investment Management, Mitsui Fudosan, BCSC, BCSC Educational Trust, Capital & Regional, Lunson Mitchenall and Hunter Real Estate Investment Managers were all published in the feature, equating to a fifth of all the commentators who contributed to the piece.
Features such as this continue to form an important part of raising profile for our clients. Using our relationships with key media titles, we are able to ensure that features generate good coverage for our clients on a regular basis.
Redwood client predictions include:
Peter Drummond, Chairman of the BCSC Educational Trust, and its apprenticeship programme Retail Path:
“In 2016, the retail property industry will see more clearly the value of apprenticeships. The Government is set to impose an apprenticeship levy of 0.5 per cent, which will raise £3 billion a year to fund three million apprenticeships, and in turn will provide improved accessibility to our industry for young people from all walks of life. Apprenticeships in our industry give young people, who would not initially understand the breadth of careers available in shopping centres, the opportunity to develop a career they may have overlooked. Apprenticeships also give us more people with the right skills to safeguard our industry’s future.”
Neil Hockin, Head of Shopping Centre Leasing, Lunson Mitchenall:
“As we move into 2016, the shopping centre industry will be faced with a number of new challenges when it comes to how we look at the physical space in centres, if we are to accommodate the new brands that create a point difference to consumers. A one size fits all solution to asset management no longer works and, as an industry, we must take this into account going forward.
“Shopping centres need to match their consumers expectations in terms of tenant mix and breadth of offer. Landlords must be aware of refurbishment initiatives and may need to consider flexible lease agreements that work for both parties and alternative uses to attract and retain footfall. Customers’ expectations are gradually out-running what retailers and shopping centres are providing, and so we are having to look at new refurbishment initiatives and flexible lease agreements that work for both parties.
“This is particularly applicable from a leisure perspective. As the restaurant market continues to gather speed, pop ups are becoming an increasingly popular way in which to attract the freshest tenants and retain customer engagement. We must be more flexible in our approach and plot out strategies that allow for continual change and development. This is how we can ensure a catering and leisure offer remains interesting and on-trend.”
Takayuki Fukui, Executive Manager, Mitsui Fudosan UK
“At least four thousand extra people are expected to be employed in the City of London by the end of 2016. Calculated into demand for office space, this could result in a requirement for an extra 400,000 sq ft. However, high quality major new space is extremely limited – Angel Court, our 24 storey prime office building is just one of only two office buildings to complete in the City next year offering floorplates larger than 25,000 sq ft. Such a significant squeeze on supply, coupled with escalating occupier demand, will ensure we continue to see the rate of vacant space in the City drop to record lows.”
Chris Taylor, CEO and head of private markets, Hermes Investment Management:
“Global transaction volumes are at record levels and performance has been strong, but there have been recent signs of appetite abating. Real estate is likely to remain an asset class of choice delivering income, a positive spread over bonds and real asset exposure in a world of uncertainty. That uncertainty includes a shaky recovery, unstable growth, persistent low interest rates, quantitative easing and increasingly weak inflation.
“Yield compression has driven global real estate pricing back to pre-crisis levels, not always supported by the fundamentals, and many markets today are looking fully priced. Rental growth is expected to remain muted in a low-growth environment where occupiers face pricing pressures and tough trading conditions.
“Most markets are late cycle and value for investors will be difficult to find in 2016. Creating assets to meet the occupational needs produced by these structural changes and targeting investments with the attributes to meet investor needs will be critical as the cycle unwinds. We will look to capitalise on these in major US cities and across Europe’s key markets as we position our portfolio to reflect the late-cycle moment in markets such as the UK. We will also recycle capital to capture the benefits of diversification across the developed world’s real estate markets.”
Ed Cooke, Director of policy and public affairs, BCSC:
“As part of its devolution agenda, government will continue to make good on its commitment to close the ‘North-South’ gap by rebalancing the economy and rolling out the ‘northern powerhouse’.
We expect the devolution of unprecedented levels of power that give local people control over decisions that promise to drive growth, attract inward investment, secure foreign investment on the part of global funds and create jobs.
“Business rates are a hot topic for retail, with the retention of rates set to be passed to local authorities. Although the concept of local tax competition is appealing, we expect more detail from government to ensure there are safeguards for councils unable to grow their tax base to the extent needed to fund local services.
“The chancellor will allocate more local growth fund money and roll out new enterprise zones. LEPs will continue to play a significant role in increasing the economic output and job creation in city regions. But we also expect property owner BIDs and combined authorities to increasingly feature in a medley of tiers of government with some role in and funding economic development.”
James Lass, Fund Manager, Schroder UK Real Estate Fund:
“Amongst the occupier market, we would expect to see emerging London hubs, such as Battersea, Whitechapel, Stratford and Croydon, continue to grow in popularity and increasingly be considered as genuine, viable alternatives to the ‘traditional’ core London locations.
“Businesses are beginning to take note of the growing desire from employees to live and socialise close to where they work. Those emerging destinations that have worked hard, not only to provide quality, flexible workspace, but also a vibrant cultural and residential offer, will prove more and more attractive to the occupier market, as will areas that benefit from excellent existing or planned transport connectivity.”
Mark Hunter, Managing Director of Hunter Real Estate Investment Management:
“Over the past ten years the reputation of the UK high street has taken somewhat of a battering. Most assume that the high street has now been handed over to the administrators, with little opportunity for investors.
“We disagree. Our expectation for 2016 is that the high street will increasingly offer real opportunities for consistent returns in particular pockets around the UK. With the right retail and leisure mix, vibrant high street-led towns will continue to enjoy strong consumer interest and whilst retailers may look to consolidate their portfolios over the next year, they will be increasingly drawn to take space in these thriving locations. Where retail take up is slower, growing demand from the leisure sector and restaurants will more than compensate, particularly in those areas catering to affluent, upper quartile catchments.”
“With this increasing occupier demand, expect 2016 to be the year that investors return to the UK high street.”
Mark Bourgeois, Executive director, Capital & Regional:
“Ministers should support our call for more transparency in the business rates appeal system, while increasing the frequency and efficiency of revaluations.
“They should also remove transitional relief so rates savings are felt quickly where they are most needed. I remain optimistic that the chancellor will do the right thing and that common sense will be applied to rates reform.”
Alex Jeffrey, CEO, M&G Real Estate:
“Rental growth will be a major theme for 2016, emerging as the knight in shining armour to defend healthy levels of overall UK property returns even as yield compression slows. The economy is doing well, with businesses and consumers alike becoming increasingly confident.
“At the same time, although construction activity is starting to pick up, we expect it to remain well below its long-run average over the next four years. Together, these factors create a very favourable climate for rental growth as occupiers become increasingly willing and able to pay more for the right buildings in the right locations. In the office market, for example, we see rents rising by an average of 4% across the UK in 2016 – the fastest pace in 15 years. The industrial sector should also perform well, and even retail rents are starting to rise or at least stabilise.”