MIPIM and the 2023 Saffery Champness Real Estate Sentiment Index
14 Mar 2023
As MIPIM starts, we are also preparing to publish the second edition of our Real Estate Sentiment Index.
This initiative, which we launched last year, is focused on mapping out what is driving change, creating opportunity and fomenting risk across the UK’s built environment and those operating within it – from housebuilders, to overseas investors and domestic commercial landlords.
Last year, one issue stood out in particular. The broad acknowledgement within the industry that we all must be doing more to address climate change.
The road to net zero
A year on, this imperative remains – it is a welcome development that MIPIM 2023 will include for the first time a specific ‘decarbonisation zone’, the Road to Net Zero, helping to showcase practical solutions to improving the environmental footprint of built assets.
But MIPIM’s broader focus this year is instructive as to the challenge this agenda faces. Better places, greater impact, stronger business is the 2023 moniker.
These three concepts are not always, everywhere, easy bedfellows. Our survey last year revealed, for example, that perceived cost implications are the number one barrier for operators in the industry not prioritising investing in climate change and wider ESG initiatives.
At a time when the cost of doing business, and the cost of capital, has been increasing precipitously (albeit from a period of historic lows in terms of business rates), this barrier risks becoming even more difficult to overcome in the near term.
That short-termism poses a real threat, though. It is clear that the direction of travel is, rightly, towards a built environment which scores highly against ESG criteria, not least reducing carbon emissions and whole-life footprint.
Numerous forces are driving this: the need to attract the best talent as an occupier, the need to meet investor demand/requirements, the need to comply with an increasing and ever more strict body of environmental regulation. Take your pick. Not acting on these issues also comes with a cost. Not least including lower value/less desirable assets, and even the risk of assets being stranded entirely.
Incentives and innovation
MIPIM this year also coincides with another significant event as far as the UK is concerned: the Budget.
Government policy has a role to play in encouraging and facilitating the swift, and cost-effective, transition to clean energy sources and the adoption of technologies and operational practices that support the journey to net-zero. The tax system is substantial lever at the government’s disposal – providing opportunity to incentivise the right investment and the right time to build resilience both for individual businesses and the economy more broadly. We watch with baited breath as to what the Chancellor may announce, with speculation rife around capital allowances, R&D credits etc.
The industry will be hoping for more than just jam tomorrow. The pressures on business today are ratcheting up, including tax – with the corporation tax rate rise set to bite in April just as developers are starting to bed in the RPDT.
Building for the future
Having had a sneak preview of this year’s Sentiment Index results, it is no surprise to me that confidence has ebbed going into 2023 compared to the same time in 2021-22 – before the war in Ukraine, before the energy price crisis, and before aftershocks of the ill-fated emergency Budget during the Liz Truss administration.
At the same time, though, it was hugely heartening to see and hear about some real success stories, and the emerging opportunities for both growth and innovation.
Clearly the industry is readjusting, as is society more generally, to a new fiscal paradigm. Pricing and valuations will need to change and that will inevitably cause near term disruption and / or inertia as plans and developments stall while new cost calculations are baked in. There may be casualties. But there is also light at the end of tunnel with all the signals being that interest rates are close to their peak, along with energy prices beginning to come down.
This is why MIPIM’s theme this year is so interesting. It chimes with what our research has shown – that emerging from the recent downturn will be an industry that is stronger and more resilient, and that is equipped to deliver impact through greener, more sustainable, more, better places.
Along with the rest of the Real Estate Team here at Saffery Champness, I am looking forward to discussing these issues further this week at MIPIM and as we roll out the findings of our research.
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