UK Commercial Property: 2021 Outlook
2021 will usher in change on multiple fronts for the UK. After years of Brexit negotiations, the country will embark on a new relationship with the European Union. While COVID-19 will still be present, the emergence of a vaccine likely means that there will be more clarity on how soon the crisis can be brought under control. The short-term effects of the pandemic on real estate will continue, but this will impact different sectors in different ways.
Short-term income loss was a highlight for real estate players in 2020, given the reductions in rent and prices on most real estate types. However, it was not all bad news, as some aspects have seen growth. Trends associated with real estate, such as working from home and online retail, witnessed positive performance throughout the year. Some of these changes are likely permanent, meaning the UK real estate stakeholder, investor, renter, and homeowner may never go back to certain pre-pandemic habits.
How the commercial property sector responds to the changes is a matter of concern for investors, including Zuneth Sattar. Like many stakeholders, Mr Sattar has seen the structural shifts that commercial real estate players have had to navigate during the pandemic. From digitising operations to ensuring the health and safety of users and tenants , the changes provide a glimpse of what the future holds for the sector.
Office
The extent to which employees return to offices in 2021 depends on the vaccine rollout. For the most part, many workers are likely to return once it is safe to do so, but remote working will form a large part of their daily routine. On the other hand, employers are certain to review their use of office space in the short-term, and, depending on how the economy recovers, in the long-term. A reduction in requirements is likely in the immediate term. Businesses that can take a long-term approach will likely want to ‘futureproof’ their needs, with workers’ health and well-being being a priority.
Retail
The UK has long been a proponent of online retail, and the pandemic served to push forward the degree of online retailing. Before the pandemic, online sales accounted for close to 20 percent of overall retail sales. This figure increased to 34 percent in May 2020, highlighting how lockdown measures and a shift in consumer habits will likely serve as the foundation of online retail’s prominence in 2021 and beyond.
The negative effect of online retail’s growth is the increasing number of closed stores and shops, which may become more pronounced once government support and eviction moratoriums end in 2021. More vacant retail spaces are on the horizon, and the stores that survive will have to evolve to stay relevant.
Retail’s downturn has a ripple effect upwards, with most lenders unwilling to lend to retail assets — especially shopping centres. However, lenders have been willing to extend existing loans allocated to retail assets, with some willing to consider secondary retail properties when assessing financing requests. For many lenders, the perception that strong growth lies with the residential sector has spurred them to consider it keenly.
Banking on Economic Recovery
While 2021 is viewed as a recovery year, economic observers note that consumers and businesses will take a cautious approach. Growth in Gross Domestic Product (GDP) is expected, but high unemployment levels are expected to impact consumer sentiment and likely lead to reduced spending in retail.
Tackling the unemployment issue will be a major theme in 2021, as a slow recovery in this aspect has a drag-on effect on overall economic recovery. However, if the UK economy’s recovery were to mirror the sharp rise witnessed in the Asia-Pacific region, the property market’s outlook will look much better.
