UK real estate market is anticipating a fundamental shift in revenue generation, says new survey

The UK real estate market is bracing for a major overhaul of its traditional revenue generation model and operating structures, according to the findings of a market survey by European law firm, Fieldfisher.

The firm asked more than 500 of its real estate, construction and planning sector clients for their views on the state of the property market at the start of 2021 – after the UK had signed its Trade and Cooperation Agreement with the EU but before the government announced its 'road map' for the easing of Covid-19 restrictions.

While the impact of Covid-19 has clearly affected the market's confidence, by far the most pressing concern for respondents is the strength of the UK economy.

A number of respondents cites the stage of the economic cycle the UK was at pre-pandemic, suggesting that activity in the UK property market – commercial and residential – could decline over the next year.

A total of 43 per cent of survey respondents believe the UK real estate market will undergo a U-shaped recovery, as opposed to 17 per cent who see the recovery as V-shaped, while 35 per cent think the recovery will be a bumpier W-shape).

An overwhelming 78 per cent of respondents meanwhile, expect demand for office leasing to be less than it was before the Covid-19 pandemic, while 65 per cent expect to see increased demand for serviced and/or flexible workspace.

Almost half (48 per cent), of survey respondents do not believe that monthly rent payments are here to stay, however 39 per cent of respondents believe the shift to periodic payments will last.

Despite general uncertainty about the future of traditional UK offices, office space remains the most popular asset class among Fieldfisher's survey respondents, with 43 per cent saying this was one of the areas they were most interested in.

Forty three per cent of survey respondents expect to find it more difficult to raise acquisition finance in the next 12 months than during the previous year (while almost the same number, 39 per cent, expect no change). Similarly, 52 per cent think it will be harder to raise development finance over the same period (22 per cent predict no change).

Had this survey been conducted following the announcement of the government's post-Covid "road map", the responses might have been different.

However, many of the underlying trends that appear to have informed the responses, pre-date the pandemic and represent long-term structural issues in the real estate industry.

Commenting on the findings, Cecily Davis, construction and projects partner at Fieldfisher, says: "It is clear from the responses we received that the UK real estate sector is preparing for new ways of generating, collecting and deploying income.

"While there appear to be mixed feelings about shifting to more flexible leasing and rent payment arrangements, there is tentative enthusiasm for delivering new kinds of work and living space.

"Positivity around residential and office accommodation is moderated by a less hopeful outlook for leisure and retail premises, while the biggest concerns among market participants are the strength of the UK economy and the fall-out from Brexit.

"Change can often be daunting, however the pandemic emphasised the necessity of adapting to new ways of working and 2021 promises to be a very interesting year for the real estate and construction industries."