Insights 10th January 2023 Workman

Looking ahead to 2023…

Our experts make predictions for the coming year across issues such as social impact, high street regeneration, construction supply chains and inflation and how they are affecting sectors including retail, city centre offices and residential.

Matthew Pateman, Partner, on driving future growth through talent and people…

“We expect to see a highly competitive employment market in 2023, so like all others, we will maintain focus on both attracting and retaining talent.

Even in the face of constant flux, we know the property industry will continue to embrace rapid evolution and all it has to offer, from intelligent building innovations to net zero targets, from community engagement to repurposing and refurbishment. Of course, people are the driving force behind the energy, determination, and commitment required for progress in all these areas, and we are proud of our success at nurturing new graduates and apprentices who develop successful careers with us – many of our senior leadership started at the firm this way.

“This is why it’s so crucial that we continue to invest in the future by recruiting and nurturing talent from a broad spectrum. By offering a range of inclusive pathways to professional qualifications alongside employment, we ensure that the net is cast ever wider to attract people with the diversity of thought, skills and background needed to achieve the industry’s long-term goals.”

Gareth Soar, Partner, Workman Retail & Leisure, on retail and its newcomer investors…

“Over the past year, the UK has seen investment into prime retail real estate by new entrants to the market. Often based overseas, these investors gauged that a nadir had been reached, but nonetheless recognised the long-term resilience of UK retail. Indeed, while online shopping accelerated during the pandemic, footfall and sales have now bounced back to near pre-pandemic levels, proving that people still love physical retail.

“Today’s newcomers to the UK retail market have proactive and ambitious plans to create value through strategic asset management and sense opportunity in areas where more cautious investors may have previously seen too much risk in a challenging market.

“Following the demise of BHS, House of Fraser, and Debenhams, there are occupier-side opportunities in certain sectors. Discount retailers like B&M are expanding as the cost-of-living crisis bites, and consumers seek out cheaper alternatives. And, as experiences continue to draw in the crowds, we are seeing leisure operators such as Gravity, Flip Out, Toca Social, and Boom Battle Bar enter the shopping centre space.”

Gareth’s comment originally appeared in CoStar.

Matthew Osborne, Partner, Venture Project Management and Building Consultancy team, on the refurbishment and redevelopment of city centre offices…

“Within large-scale city centre office refurbishment, the spotlight is firmly on a value-add approach, where salvaging existing elements of office buildings for re-use not only provides cost efficiencies but also plays into ESG agenda by cutting embodied carbon. For the coming year, this is likely to spark a mindset shift around what ESG really means, and what the property industry should be achieving in terms of tangible measurable energy and carbon reduction outcomes, rather than simply green-badging buildings.

“In 2023, we suspect city centre locations will be hugely desirable, with private equity funds primed to pounce when the time is right in locations that haven’t yet reached their peak potential, such as Glasgow and Bristol, as well as stalwart locations such as London, Manchester, and Birmingham.

“The office of the future will need to carefully balance achieving ESG targets, providing best-in-class quality and amenity-rich provisions.”

Matthew’s comment originally appeared in EG.

Eleanor Newton, Senior Associate, on social impact at office schemes…

“In 2023, the ‘S’ of ESG will become just as important to investors and occupiers as the environmental and governance aspects are now. Trilogy-owned campus scheme Republic is a prime example of delivering social impact, having recently run a programme of events which included children’s playgroups and a cinema club for the wider community and refugees. Located in London’s Tower Hamlets, the local authority with the UK’s highest level of child poverty, Republic’s occupiers are also keen to give back to a local community where 56% of children live in poverty, more than double the rate seen in London’s Borough of Kensington and Chelsea. And, as it becomes increasingly important for the impact of vital CSR work to be tracked and measured, both at asset level and across fund portfolios, we are working alongside our ESG team to develop strategies to deliver this.

“Net Zero will become a daily conversation in 2023, it will increasingly become clear that everybody’s job is a sustainability job. As the global warming time-bomb ticks, we must not let perfection be the enemy of making a start on Net Zero journeys. As occupancy levels continue to fluctuate through school holidays, train strikes and other external factors, it’s vital that we track building usage patterns very closely – perhaps through an occupier app – to ensure that the correct service levels are delivered, and that energy efficiency is meticulously managed through smart building tech to avoid wastage.”

Esther Worboys, Placemaking Manager for the Workman Activate team, and Expert for the High Streets Task Force, on high street regeneration…

“The high street is not dead – but it is changing. The uptick of food and beverage outlets is already delivering a more experiential and social ambiance to many high streets, and despite the cost-of-living crisis, this is unlikely to wane as consumers seek out affordable treats in their daily lives.

“As levelling-up announcements and bids materialise over the coming months, we will see investment into the community aspect of town centres, which includes public realm, markets, and local schemes. Local authorities will be analysing the mix of use in their town centres and using levelling-up funding to carry out research or start to implement wider changes. With these changes, it’s vital to remember that each high street must be treated very differently, according to the needs of the local community.

“The post-Covid trend for localism and the social value of community is a big deal for investors, many of whom will be looking to create partnerships with community groups and local authorities, and a lot of the building blocks are now in place for this to gather momentum and become reality in 2023.” 

Vicky Cotton, ESG Director, on energy efficiency…

“The current energy cost crisis stresses the need to double down on energy reduction. But what’s not measured can’t be effectively managed, so access to both landlord and occupier data has never been so significant. Armed with a more accurate grasp of exactly how whole buildings are performing, it’s possible to work with occupiers to drive down their own costs. This is also where smart technology, energy audits, and a phased upgrade of plant and systems to improve efficiency, will have a significant impact on cost reduction.

“Energy prices are unstable, and markets are likely to remain volatile well into 2023, so the focus must be on both short- and long-term reduction strategies. The payback timeframes from PV (solar panel) installations are expected to fall significantly – and could even halve against the increased grid energy costs. Reducing reliance on gas can mitigate exposure to the risks of spikes in the energy market and utilise more clean energy, while helping to achieve net zero carbon emissions.”

Vicky’s comment originally appeared in Sustain RE.

James Hallworth, Partner, Head of Building Technology, on intelligent buildings…

“In the past year, challenging sustainability targets and rising energy costs have focused landlords’ attention on operational efficiencies, leading to increased demand for smart building software.

“As large capex projects for reducing energy consumption in buildings fall off the radar due to the current negative economic climate, prioritising cost-effective solutions such as intelligent building operating systems will be critical for the future. This will become more and more important in the next 18 months.

“It is particularly pertinent in legacy assets, as part of refurbishment and retrofitting efforts, and in the context of spiralling energy prices and growing occupier expectation concerning efficiencies. Intelligent building operating systems are a critical tool in continually optimising how building systems operate and respond to today’s hybrid working patterns, which have made traditional operating practices deeply inefficient.

“For 2023, there is increasing investment in smart building tech for offices on the horizon. In addition, shopping centres and industrial assets are beginning to recognise the potential of intelligent building operating systems.”

Brendan Magee, Partner, Building Consultancy, on construction supply chains and inflation…

“2022 has been a year of volatility in terms of construction supply chains and cost inflation issues. As we enter 2023, this is easing as prices are starting to settle, and we are beginning to see some contractors can hold prices longer than we’d seen through most of 2022.

“However, in the coming year, the cost of labour will present one of the biggest challenges across the construction industry. The loss of migrant labour due to Brexit was compounded by Covid, and many people never really came back.

“At the same time, the cost-of-living crisis means that everybody requires more money to maintain quality of life. Investors will have a very fine line to walk between cost and quality standards. It is vital that they maximise the expertise of their project management teams when it comes to due diligence in ensuring that contractors are following anti-modern-slavery policies, for example.

“This can’t be a race to the bottom at the expense of quality, so relationships between clients, project managers and contractors will need to be more open, honest and collaborative than ever before, with consideration of strategic procurement methodologies at the top of the list.”

Nick Clark, Partner, Venture, Workman Projects, on the residential sector and BTR…

“Covid reminded institutional investors that nothing is as safe as houses, and over the past year we have seen a steady increase in build-to-rent project management and development monitoring instructions, which looks set to continue for the foreseeable future. Recent research carried out by Get Living and M&G, shows that by 2032, 8% of UK homes for rent will be purpose-built, up from 1.5% today.

“For 2023, we are seeing an evolution of the market. Rather than a continued reliance on high-rise city-centre multi-occupied blocks, there will be a shift to low rise and single-family homes built further afield. This is already becoming evident within our projects, and the same research shows single-family homes making up 18% of BTR stock in ten years’ time compared to 12% today.

“These developments, which are often favourably received by planners if they include elements of affordable housing, will present attractive growth areas for funds primed to invest in safe residential schemes that offer the returns they are looking for.”