ONE of the big questions in the commercial real estate market lately concerns the future role of the office.
Interestingly, the Royal Institution of Chartered Surveyors (Rics) asked commercial property members in their latest report if they felt office space was still critical to the success of a business. Some 66% of them across the UK said yes, 29% said no, and the rest said they weren’t sure.
I suspect that if the question had been asked earlier in 2021 or 2020, the proportion of positive responses would have been significantly lower. Things are changing rapidly in the commercial and residential real estate markets and especially during a pandemic.
At the end of 2020, optimism was low in the economy as the UK and Ireland slipped back into another lockdown and businesses rushed to forecast for the year ahead as the Brexit transition deadline was coming. Surprisingly though, 2021 picked up its pace from week one, with demand kicking off quickly from both commercial and residential occupiers.
While in normal years our residential team spent much of the first quarter preparing for a busy summer season, the market flourished from the outset in 2021 as prices continued to rise and demand for larger homes continued. to grow.
This price increase continued through the end of June in line with the stamp duty suspension, and while prices began to stabilize in the second half of the year, buyer demand continued. Indeed, our residential team achieved record sales in the luxury home market and the region’s largest residential transaction of the year.
In the commercial market, as retailers and the hospitality sector faced new challenges imposed by another lockdown, demands for industrial warehousing of all shapes and sizes poured in from the UK and RoI as as businesses rushed to implement their Brexit strategies and rents hit new highs during the year, mirroring trends across Europe.
While the office market appeared sluggish in the first quarter of the year, office transactions were strong with rates and yields recovering through the second half.
Demand for building land has been exceptionally high in 2021, despite rising material costs. Again a lack of supply relative to demand has pushed prices past the typical value of £35,000-£45,000 per site for multi-unit developments, with one development site in South Down with planning for 21 new homes reaching almost £75,000 per site.
As we enter 2022 with renewed optimism, we will never forget the unprecedented impact of Covid on all aspects of our lives. However, where there is challenge there is opportunity and the performance of the various real estate sectors in 2021, with the exception of retail, bodes well for continued growth in the year ahead. .
Indeed, the latest RICS UK trading market survey reinforces this optimism. He points to growing investor demands and notes that capital value expectations are strengthening. It also highlights growing occupier demand and expectations for further rental growth in the industrial and office sectors.
Unsurprisingly, expectations for retail leasing remain subdued, with further turbulence likely on the high street, as well as the ongoing battle to reinvent and repurpose the mall. It is less about digitization and a mix of tenants than “place-making”.
Create engaging social spaces where people come together to shop, eat, work and live. There is no doubt that retail, despite its challenges, will also offer opportunities in 2022.
:: Garrett O’Hare is Managing Director of Bradley NI, a commercial and residential real estate agency with four offices in Belfast and South Down.