This market report was published in December 2020. To explore our July 2021 update to it, click here.
Deal or no deal, New Year’s Day 2021 will herald a brave new world for the United Kingdom. We will (for better or worse) be in a new relationship with the European Union, after five years of debate, division and uncertainty. We will not quite have exited the COVID-19 winter, but the shape of that exit will be much clearer. And although the 2019 UK General Election now seems a distant memory, the UK Government’s majority in Parliament gives us the greatest degree of political stability since 2010. With Brexit receding into the background as a pre-occupation, new issues will emerge for UK economics, politics, society and real estate.
This report explains what CBRE thinks happens next.
Which sectors are thriving and which are facing substantial challenges?
Economy
Economy
The UK’s two national lockdowns mean that the UK economy will now not recover to pre-pandemic size until at least mid-2022. We expect a consumer-driven recovery, with retail sales already having recovered quite strongly. A combination of low interest rates, low inflation, powerful fiscal stimulus and the resolution of Brexit uncertainty will support recovery. While real estate faces a very subdued 2021, we anticipate a good medium-term recovery.
Offices
Offices
Office take-up will remain below trend in 2021, but some sectors such as life sciences will outperform. Equity targeting the key central London office market remains high and will drive a reasonable recovery as uncertainties resolve. Flexibility in employee working locations will be a big theme for 2021, but the long‑term trend of office densification and space efficiency seems likely to remain a big driver of office demand.
Retail
Retail
COVID-19 has savaged an already-weak UK high street suffering from high costs, lack of innovation, and pressure from Europe’s largest online retail market. Although some retail formats have proved resilient (supermarkets, retail parks and warehouses), the sector will now be forced to think very radically indeed about its future. Repositioning of many assets to mixed use seems likely.
Logistics
Logistics
The already-surging UK logistics sector will be given a ‘second wind’ by the pandemic’s permanent effect on online retail. With strong demand and weaker supply, rents will rise further, especially for well-located property in peri-urban areas. Yields are expected to fall even further as less specialised investors find ways to access the market, including through M&A and joint ventures.
Residential
Residential
Residential property has been the surprise outperformer during the pandemic, with fears of a repeat of 2008’s housing market collapse proving unwarranted. Investment levels into institutional rented property have been sustained and will hit new records throughout the next few years. Fiscal support for the owner-occupied market has maintained prices and transaction levels, though the risk of rising unemployment means we remain cautious about the outlook.
Hotels & Hospitality
Hotels & Hospitality
As with retail, the UK hotel and hospitality sectors have had a very rough ride in 2020. Necessity has been the mother of invention, with operators and landlords forced into much closer collaboration in order to survive. Innovation will proceed apace to adapt to the weaker economic outlook, ferocious competition, and to maximise efficient use of real estate.
