Four key trends for UK real estate in 2022

The strapline for a movie about last year might have been something like “2021: if it’s not one thing, it’s another”.

Four key trends for UK real estate in 2022

Benjamin Davis is chief executive of Octopus Real Estate

The strapline for a movie about last year might have been something like “2021: if it’s not one thing, it’s another”. Coronavirus, political instability and climate change converged to destabilise the UK in ways not seen for a generation. So, what does this year hold for the property market?

Homes for the new normal

Following the pattern set over the last couple of years, house prices will keep rising through 2022 as we hopefully begin to emerge from the worst of the pandemic – although perhaps not at the rate we’ve seen recently, and perhaps only in certain markets.

It’s going to be all about ‘COVID-safe’ properties: family homes with more space, both inside and out, and areas outside of major cities will see the most price growth.

People are prepared to travel for longer if they don’t have to be in their office five days a week and will begin to value things such as fibre or broadband speed over proximity to their workplace.

But a shortage of truly affordable homes remains a key problem. The good news is that there are some really exciting opportunities on the horizon to tackle the current housing shortage in a creative, sustainable way.

Offices but make them ‘magnetic’

With people increasingly motivated to work from home on a permanent, or at least semi-permanent, basis, there’s an obvious knock-on effect for offices.

The bounce-back post-lockdown has not been as strong as some might suggest, particularly in London where occupancy is still down.

In order to reverse this trend, it’s going to be up to employers to create a ‘magnetic office’: somewhere that attracts people to return, with high quality amenities or benefits.

Think of inspiring surroundings, break-out spaces, sit/stand desks and decent coffee. That means demand for really good office space will continue to increase, although we are yet to really establish how the new working environment is going to play out.

Each company has different needs, and each person has slightly different desires, making wide-reaching flexibility potentially tricky to manage.

Green outlook

But the focus won’t just be on providing amenities for employees. With sustainability issues front and centre, we can expect to see greater regulatory pressure on building developers and owners to meet increasingly strict environmental standards.

For example, under the new government MEES regulation, which is set to be introduced in 2023, buildings in England and Wales with an energy efficiency rating lower than ‘E’ will not be permitted to be leased.

It sounds technical, but this means it is likely that many investors, landlords and building owners are going to need to spend heavily to bring their properties up to scratch, and so demand for energy efficient buildings will grow, as will their value.

People will be willing to pay more for buildings which are very energy efficient, and we are already seeing a difference in prices being paid for those with higher EPC ratings.

Forward-thinking businesses are likely to only consider energy efficient properties when looking for a new office - which many will be thanks to the shifting work environment - because they value both the building’s lower running costs and the green kudos they bring. Consequently, the value gap between high- and low-rated buildings will widen.

At Octopus, we will turn down investments that aren’t meeting environmental standards because our investors want better - they are interested in the assets they put their money into having a high environmental rating.

In short, we are heading into a more ‘purpose-driven’ investing and leasing culture. Investors are telling us that why they do things is becoming just as important as the returns they are making.

Retail evolution

Elsewhere, demand for logistics warehouses and storage space will remain strong, driven by the ongoing rise in online shopping and in demand for self-storage.

But 2022 is likely to continue being tough for retail: the high street shake up will continue, and we will see more retail buildings repurposed for residential use.

Much like the office sector, demand for the right kind of retail will be high. Retailers will be focused on attracting shoppers to their physical stores via experiences and engagement, and 2022 could prove a year of reckoning as brands regroup after tackling the effects of multiple lockdowns.

It is going to be an interesting year, and one where the polarisation of the property market - between those buildings which are ready for a post-COVID, sustainable world and those that are not - may well become more stark.