Real Estate Sentiment Index 2022

14 Mar 2022

Office buildings

Saffery has published its inaugural Real Estate Sentiment Index, a survey of more than 100 business leaders, investors and professional advisers in the real estate sector, spread across every region of the UK.

In addition, we interviewed leading individuals from four key areas of the real estate market – housebuilding, commercial development, investment management and overseas inward investment – to get their thoughts on the recovery of the market, plus the potential opportunities and barriers to growth in the year to come.

It is fair to say that the real estate sector in the UK, as a whole, remains buoyant in the first few months of 2022.

Housebuilding continues to be a key priority for the government as it tackles the long-term shortfall, while changing demographic and social trends – some of which have been triggered and/or accelerated by Covid-19 – have required new models and products to be developed, creating new investment opportunities in the market.

At the same time, the commercial sector continues to rebalance, with high streets and retail destinations evolving in line with consumer shopping habits (again, partly driven by the impact of the pandemic) while the future of office-based work is altering what occupiers need from their real estate and what therefore investors and developers will need to offer.

Key in this respect is digital and smart technology, as well as a recognition of the role that real estate plays, or can play, in meeting environmental, social and governance (ESG) goals – not least the global drive towards net zero.

However, there is a note of caution in respect of inflationary pressure, a lack of available resources in the labour market and continued supply chain shortages and prices rises.

Our survey was conducted before the Russian invasion of Ukraine and so it is likely that some of the optimism shown by participants may have since tempered – including as a result of further increases to energy prices.

The UK remains an attractive destination for investment and development activity, not least given its stability, rule of law and, in many ways, favourable tax environment.

Key findings are:

  • Confidence in the market is high, reflecting rising investment levels after the Covid-19 downturn.
  • Increasing profitability (63%) tops the priorities list for 2022, with real estate businesses focused on shoring up their financial position as challenges loom on the horizon.
  • 65% of participants are concerned about supply chain disruption, with general cost of doing business, labour availability, economic/political environment and securing planning making up the top five challenges facing real estate in 2022.
  • Residential is expected to drive the majority of activity in 2022, with build-to-rent (BTR), in particular, emerging as dynamic, high growth asset class (60% of participants are expecting heightened activity in their primary regions).
  • Industrial tops commercial sectors for projected activity (53% expecting more activity in their regions). Meanwhile, among participants undertaking activity in alternatives in 2022, 27% expect to complete deals or deliver projects in logistics (the highest single alternatives asset class).
  • The industry is beginning to adopt technological solutions, with a primary focus on off-site (57% already using or planning to) and modular construction (50% already using or planning to). But awareness of technological solutions does remain limited in some cases, amid uncertainty over potential benefits.
  • Energy efficiency and carbon footprint reduction is seen by more than a third of participants to be the greatest benefit of the use of technology in development (35%), amid rising industry consciousness of ESG criteria and net zero targets.
  • Meanwhile, 76% of participants say the industry is not yet doing enough on climate change.
  • Participants acknowledge the existence of a green premium on buildings with better ESG credentials (70% say such buildings command higher values/rents in their regions), but perceived cost remains the number one challenge to the industry taking action on or prioritising climate change and ESG (noted by 31% of participants).
  • More than a third (35%) of participants are currently unaware of the availability of financial incentives such as tax reliefs and allowances to support investments in carbon footprint mitigation and other sustainability or climate change projects.

Please do get in touch if you would like a full copy of the report or to discuss any of the findings in more detail.