The next 12 months will be challenging for property owners and occupiers. Kevan Carrick, co-founder of JK Property Consultants offers his perspective on the year ahead.
It’s always good to start with the positive news. The signs are there that there are sunlit areas of the property sector, particularly in industrial and manufacturing. New demand from inward investors and foreign direct investment, with the growth of new and innovative sectors, such as energy, automotive and life sciences, has benefitted the region enormously in the last 12 months and his will continue to help to grow the economy, driving development and investment.
Now for the nitty gritty.
Commercial property occupiers will continue to incur higher energy costs. They will be under pressure to achieve zero net carbon in the foreseeable future in both the property occupation and operational processes. This will mean higher revenue costs and greater pressure on profitability and it will be particularly acute for smaller businesses. The lower demand for property will see little increase in rents and an increase in the incentives available to attract occupiers taking leases and encouragement to agree longer leases.
There is a plethora of information available to improve sustainability and reduce energy costs but the challenge is how to access this and determine the payback for the investment to meet obligations and achieve value for money. The pressures will require good relationships with landlords to consider how to improve the insulation of the fabric of existing buildings and where those improvements increase the value of the landlords’ investment in both revenue and capital terms. There is a mechanism under the Landlord and Tenant Act 1954 to help resolve matters.
Property investors are experiencing a dynamic shift in demand from and the needs of occupiers. More occupiers are under cash flow stress, are seeking shorter term leases and are resisting the pressures on rising costs, where they can. Rental growth is expected to be flat over the next year. This increases the risk to the landlord in the continuity of income and returns on investment are not likely to improve in the next 12 months.
Residential property has seen a lowering of demand over the last few months, and this is likely to continue over the next year and lower interest rates will help existing owners and house resales, with a forecast rise in prices. First-time buyers will continue to struggle to enter the market. There remains a challenge for rental properties with rents increasing because of the shortage of houses and flats. This is also adversely impacting on the condition and quality of accommodation.
The value of property and the unstable market suffered over the last few years, will continue until there is an increase in the supply of houses for sale and to let, this includes social and affordable homes. Successive governments that have failed to deliver the minimum 300,000 per annum have exacerbated the problem and will continue to do so until there is a greater supply delivered. This problem will continue to slow the growth of the regional economy.
Such improvement in the delivery of more houses requires a paradigm shift in the housing sector on delivery mechanisms, particularly in the supply of land, greater contributions for social and infrastructure needs and construction of houses at a time when there is a demand to build houses to higher standards for quality with insulation and achieving carbon net zero.
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