Estates Gazette’s latest Question Time event is focusing on the future of real estate – but it’s not just about bricks and mortar anymore, it’s about protecting the environment and people’s mental health. Ahead of this wide-ranging debate in London tomorrow, some of our real estate partners share their thoughts about what they are hearing from their clients, the market and some of their predictions.
Catherine Williams, partner at Shoosmiths says: "the build to rent sector has been a hot topic and clearly already taken off for millennials. We are now seeing a number of rental schemes aimed at the grey pound that have been in development practically completing and opening.
The rental model relies on occupiers having enough money from the sale of their family home, plus pension income, to allow them to rent accommodation for the rest of their days. Affordability tests may mean that this product is only accessible for the wealthy or homeowners in affluent areas. I also query whether the rental model will be scaleable, both across a number of price points and geographically.
Another concern with the rental model would be how operators will terminate rental agreements with elderly residents who fall into arrears if they did get their sums wrong, or they outlive the assumption in the affordability test. The fallout from evicting someone in those circumstances would be a PR disaster."
Catherine Hood, partner at Shoosmiths says: "for me the word of the day is flexibility. Buyers and occupiers are thinking about things much more flexibly. Look at the changes from offices to home and flexible working, shops to clicks and mortar and online, 10 to 15-year industrial leases to five year contract-driven warehouse leases and from house builders selling freeholds to owner occupiers against PRS.
There’s also the challenge around funding this new flexible world of property. Short-term arrangements aren’t as secure for funders or investors and the challenge here is that money has traditionally come into property as a “safe bet”. Location and quality of product now becomes key – but investors aren’t investing in the income from a 20-year lease anymore (and developers can’t rely on selling houses or flats to individuals because no-one wants to be committed to a 20-year lease and people can’t afford to buy their homes).
Funders have to start to rely on the business models of the property operators (serviced offices, co-living, PRS providers). This is a pretty radical shift in what is actually being valued. Property investors and institutional debt providers are often looking for long-term income and capital growth and the safety of bricks and mortar. Will they still be able to get what they need out of real estate – or will we need to be tapping into new sources of funding with different expectations – and where are we going to find them?
Also, far more of our lives will happen in our own neighbourhoods once again. Commuting is becoming more painful, travel is frowned upon and we are now far more environmentally conscious. Mixes of uses and proper cohesive mini-communities are going to come to the fore again. We are starting to see shopping centres adding residential development to the mix, housing estates adding work hubs rather than just the corner shop, rural communities growing office hubs and demanding high-speed broadband and employment land now sitting side-by-side with residential development (sheds and beds) – just like it used to before the “city centre” or the out of town retail/industrial parks came into being."
Lisa Williams, partner at Shoosmiths says: "the future of real estate from my perspective is the need to provide more housing for all and, in particular, for the ever-increasing population of retired people. Pensions are never going to be what they were in our parent’s day and, as such, people will be forced to downsize earlier and move to more affordable housing – retirement flats and mobile home parks.
There is increasing demand for retirement housing in urban locations. Shops, healthcare and other amenities being within easy reach are important as we get older. But city centre developments can be expensive, and some city centres have their not-so desirable areas. Mobile home parks are an attractive alternative, where each park is a community in its own right. The occupier owns the home and can move it to another park – it is theirs for life. They have a statutory right to remain on the park and there are rights of succession. However, there is a stigma about mobile home parks and the legislation needs some looking at. Also, the advantage for the developer seeking planning permission for a mobile home park is that the Community Infrastructure Levy does not apply. So the cost of development may be less both in terms of planning charges and the cost of construction. However, Section 106 contributions may still be imposed.
At the same time, there will be a need for new housing estates to be carbon neutral. I recently met with one of our housing developer clients who is looking at putting a solar farm on part of the development site purely for the purpose of providing electricity to the development. It is early days on that scheme but with the cost of electricity from renewables going down this must be the shape of things to come.
More widely, I think we will see developers offering renewable energy sources to power their developments in the planning process, for example each house plugging into a central energy system for the development. Electrical charge points for cars are already a must. Planning conditions will also be imposed to ensure the country becomes carbon neutral – although that date will surely be decided by the result of the election.
EG’s Future of Real Estate takes place in London on November 21. Our partner Angus Evers will be on the panel. For more info, go here