Market viewpoint:
Robin Grove
Divisional Managing Partner of Construction, Real Estate and Disputes Charles Russell Speechlys
Charles Russell Speechlys is an international law firm with a focus on private capital and a large real estate practice that covers investment and finance, development and regeneration, property management, planning and disputes advice.
Robin Grove
Divisional Managing Partner of Construction Real Estate and Disputes, Charles Russell Speechlys
What’s your view on market prospects for the coming year?
I’m still optimistic that investment activity will recover, but I wouldn’t predict a bumper year. Until the market accepts that assets have been re-valued, due to the high cost of borrowing and weaker sentiment, it will be more difficult, in general, for transactions to proceed.
However, there’s slightly more certainty about interest rates now and the debt market is definitely coming back. Clearing banks may be somewhat slow to return to the party but debt funds are certainly taking the opportunity to step in.
Building safety is a major issue. The new Building Safety Act is a lot more involved than people realise because it goes beyond just fire safety. There will be a big learning curve around how it is implemented.
Where are the best opportunities to be found?
There’s some pain in certain areas of the market, such as the food and beverage (F&B) sector. F&B businesses continue to be hard hit by issues like rail strikes, redundancies and right-sizing, which will create opportunities especially for private equity players, especially to deploy capital.
Life sciences real estate is another sector to watch. It’s a booming part of the market and we are seeing lots of demand. But people are realising that these are not just high-end offices; you need a lot of expertise both upfront when it comes to the deal and in terms of the ongoing management.
Has the London office market lost its lustre?
London retains significant attraction, particularly for overseas capital. Notwithstanding recent political turmoil, and we do risk being somewhat myopic domestically about how impactful this kind of thing is abroad, many overseas investors still value the trust and certainty that the UK provides on the whole - things we often take for granted like the rule of law which protects investments from being appropriated. We expect to see some investors returning as we look ahead, and certainly hear of potential investors holding sterling to take advantage of the weak pound, ready to invest when the time is right.
For offices generally, the market is softening but I don’t get the impression that there will be a massive downturn in demand for office space. Changes to working practices are still in flux. Most tenants are on long leases so they can’t just downsize overnight. But keeping talent happy is also important, and employers need time to work out what experience workers want from the workplace before making big decisions on space.
What other big issues are on the horizon?
Building safety is a major issue. The new Building Safety Act is a lot more involved than people realise because it goes beyond just fire safety. There will be a big learning curve around how it is implemented.
For housebuilders, it’s good news that the mortgage market appears to be settling down. But the fact that the government is backing away from housebuilding targets and moving the dial on planning, back to more local involvement risks exacerbating nimbyism and would almost certainly make it more difficult to get consent.
ESG remains a significant consideration, and if buildings are not Grade A energy rated, valuations will come down. Tenants must fulfil their net-zero promises and that’s trickling right down the supply chain.
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