Foreword
Welcome to the second edition of the Saffery Real Estate Sentiment Index.
When we began our Sentiment Index project back in 2021 we could not have predicted just how much the world would change, and at what speed.
Rising geo-political uncertainty and surging energy prices have reverberated across Europe, the UK and beyond, contributing to a challenging financial environment driven by inflationary trends and the reversal of a long-term period of historically low interest rates.
Higher prices, and a higher cost of debt – not least mortgage interest rates – have hit hard and fast.
The real estate sector has not been immune from these seismic shocks.
It was no surprise to see ‘access to finance’ surge as an area of concern for our survey respondents, though it is probably better to think of that as ‘access to affordable finance’.
With consumers having less spending power than even a year ago, and continued issues with UK government policy on planning and other housebuilding related issues there is a risk of the market stalling, with many developers slowing down on delivery as reservation levels slow or fall. But 2023 is likely to be a year of two halves.
After an initial period of stagnation as the industry took stock and re-budgeted, activity across the investment market has shown recent signs of improvement – perhaps this is a sign of interest rate stability returning, albeit at a higher rate than we have seen for the past 15 years.
Developers and investors are ‘pricing in’ the new financial reality, with schemes now being revisited– albeit with new definitions of what is achievable and what level of returns can be expected.
At the same time, there is a clear drive towards more energy efficiency and sustainable operations and supply chains. The energy price crisis has cast this into sharp relief, with reliance on overseas fossil fuels a clear political and business risk and resulting in accelerating demand for domestic renewables. The real estate industry is responding to this. It must. But it will take time and investment, as well as government support. Retrofitting remains an important topic both for the residential market and the office market and it remains to be seen whether the government's tax incentives, including capital allowances and a temporary zero-rate of VAT for the installation of energy saving materials in residential properties, will have the required stimulating effect.
In this context, it is no wonder that confidence levels heading into 2023 have ebbed. But amid the challenges there have been, and continue to be, real success stories and areas of exciting innovation and development – which fills me, and the rest of the team at Saffery, with real optimism for the future.
Saffery LLP is a member of Nexia a leading, global network of independent accounting and consulting firms. Please see https://nexia.com/member-firm-disclaimer/ for further details.