Real Estate round table: challenges and opportunities for the sector

Our real estate experts held a Real Estate round table on 22 June for leading professionals in the sector here in London and the South East, including developers, solicitors, surveyors, investors, affordable housing developers, construction consultancy’s and development and public body finance loan teams.

The small group met in London to discuss both the current and future challenges facing the industry including:

Rise of inflation squeezing the housing market and financing

From a construction perspective: In the current economic environment and working with housing associations and contractors, the low margins on projects present serious financial challenges for construction firms.

Additionally many construction firms are still feeling the effects after UK top 100 construction firm Henry Construction went in to administration. For those who worked with them including Housing Associations, the impact has stopped many houses being built at a critical time.

Construction firms currently have greater uncertainty about how they can unlock planning, financing, and multi-year contracts along with continued challenges across the construction supply chain. There is also broader uncertainly with a pending general election and possible new government by Autumn 2024.

From a surveyor perspective: it is difficult to be a valuer following to the September 22 mini budget and different property classes doing better than others. There are plenty of obstacles in the developers’ way and for individuals trying to acquire, dispose and keep tenants happy in properties. Changing legislation in the residential rental market along with the rise in interest rates is also compounding supply and demand issues for both residential landlords and tenants, especially here in London and the South East.

Due to banks point in time valuations since September and through asset class stress testing, there is currently a two-tier division between cash buyers and where transactions are coming from in comparison to those reliant on lending or refinancing. Everyone is hoping this issue does not deepen further.

Construction costs

Overall construction costs remain stubbornly high, and the sector is having to think about different ways of getting supplies. There are schemes available that specifically help with more modern ways of construction which are being explored by many in the sector to help overcome this issue.

Stalled planning

Universally the participants felt the current planning system in England is broken, as it takes too long, is too political and too expensive to bring many schemes forward for approval. But there are interesting times ahead, especially if there is a change of government in 2024.

A key to solving the housing crisis in the South East is for there to be more affordable housing which, with all of the other challenges on costs, are being delayed and also a more effective use of Section 106 legal agreements between the planning authority and a developer.

A more local issue in East Kent is the Stodmarsh Nutrient Neutrality scheme which has had a major effect, effectively putting the brakes on a number of major house building schemes. The wider industry needs more creative thinking and specialist advisors that can support them with these complex environmental challenges.

The opportunities

Some of the more positive points for the sector which will be welcome news for those holding assets in towns and cities across the South East is that shops and high streets are reporting being busier and secondary retail is performing well. People are spending more time in their local area during the day as many are working from home and therefore their spending has increased locally which benefits the wider local economy.

There is an increase in interest in the commercial rental market for specialist assets such as, doctors’ surgery’s, but premises such as those used by churches are the only assets being let for long term leases 25 years, as they are community based.

Anne Dwyer, Audit and Assurance Partner and Head of Real Estate at Kreston Reeves and host of the round table commented:

“We were delighted to hold our Real Estate round table and we are grateful to those in the sector who took the time to join us and our own Real Estate team and to share their knowledge and experience. Clearly there are many issues facing the sector and the Real Estate landscape continues to change, but there are opportunities and access to affordable funding for many schemes remains. Businesses in the sector need trusted advisors who understand the sector and are there to help them to navigate the challenges and to seize the opportunities ahead.”

If you’d like to know more about our Real Estate roundtable or any of the topics discussed, please contact us today.