1. Residential price growth set to continue, albeit at slower pace than 2021
As we head towards the end of the year, the Shojin team have been reflecting on the tumultuous events of the past 12 months and what they mean for the real estate investment sector looking forwards. Whilst the rolling series of on-again, off-again lockdowns seen around the world have injected high levels of volatility into equity markets, property prices have been on a steadier upwards trajectory. According to data from mortgage lender Nationwide, UK house prices actually rose an astonishing 10% year-on-year in November. This puts the average UK property price now a full 15% higher than it was before the pandemic.
Although most commentators are expecting the market to slow down a little next year as economic conditions normalise, past gains have already been consolidated and there are numerous regions where further growth can be expected. The star performing regions of this year were the South East, South West, East of England and North West, and all four region should be watched closely for further gains as we head into 2022.
2. Net zero is no longer just a vague aspiration
There was a time when ‘the taller, the better’ rang true for most prestige property developments. A classic example would be the nearly 1,400-foot residential tower at 432 Park Avenue in New York. Briefly the tallest residential building in the world, and then the pinnacle of New York’s luxury apartment boom, today the residence is mired in a series of legal tussles between owners and the developer. Criticisms include millions of dollars of water damage from faulty plumbing and other mechanical issues; regular elevator malfunctions; and walls that creak like the galley of a ship when the wind blows.
In 2022, this maxim could well be reformulated as follows: ‘the greener, the better!’ Put in simple terms, this means new-build property needs to be built and subsequently operating to the lowest environmental footprint possible. Importantly, it is increasingly market forces that are pushing developers to look for creative ways to ‘green’ what is traditionally a pretty environmentally friendly industry. According to research from estate agent Savills, demand for office space that can satisfy ESG criteria is currently far in excess of available supply, and companies are increasingly having to pay a premium to access office stock rated EPC ‘B’ or above. The same dynamic as be seen is the new-build residential sector and this trend is expected to become even more prominent in 2022.
Emblematic of this shift in emphasis is the much anticipated €300 million ‘green makeover’ set to transform the Tour Montparnesse in Paris into what the architects call an ‘icon of the 21st century energy revolution’. Central to this vision is the bold plan to transform the lower floors of the skyscraper into open planted gardens, thus improving air quality within and around the tower. Computer generated images like the one reproduced to the left here of the new-look Tour Montparnasse certainly look special, and there can be no doubts about the direction of travel when it comes to environmental concerns and their impact on the real estate sector.
3. London is still one of the most desirable locations for real estate investment
Confidence in the European real estate market has reached its highest level since 2014, according a recent report authored by the Urban Land Institute and PwC. In a survey of 844 property investors, mortgage lenders, developers, fund managers and advisers, London came out on top as the best location for real estate investment in Europe. This would have been difficult to predict last year, when Covid seemed to be encouraging more and more people to relocate out of London and into the countryside where more space was available to buyers for the same amount of money. By now it is clear that the ‘flight from the city’ narrative has receded into the background, and real estate in dynamic urban centres such as London is reclaiming its place at the heart of any well-diversified portfolio.
Property investment professionals interviewed as part of the PwC survey pointed to several unique benefits enjoyed by the UK capital. These included the depth of the London market and its gateway status, plus the general confidence that London can continue to place itself at the forefront of innovation in business and finance but also increasingly in technology and life sciences as well.
4. Get used to hearing about prop-tech
Similar to, although less well-known than, fintech, prop-tech stands for the combination of new technologies with an often resistant to change industry. Prop-tech can therefore mean everything from software applications such as Rightmove and Zoopla who started to digitise the property market over ten years ago; to hardware developers designing sensors and other tech to be installed into smart homes; to break-throughs in materials and manufacturing techniques like 3D printing and preassembled homes; and even the connectivity that has enabled virtual home tours to keep the market moving during the lockdowns.
However, arguably the biggest impact prop-tech can have is on the methods of financing real estate developments, and who is able to access these highly profitable opportunities. Shojin is one of several UK-based companies at the forefront of this emerging sector. The basic idea behind Shojin is that if you can securitise a property development, then large scale residential and commercial real estate becomes much more liquid and easier to access for ordinary investors. Given that a report by McKinsey found that nearly two thirds of all global wealth are held in the form of real estate, the potential for investors and those seeking to attract investment is enormous. Expectations are therefore high for the prop-tech sector in 2022 with the real estate financing sector ripe for technology-driven disruption.