These Survey Results Point To Stronger Investor Optimism Than Anticipated

The results are in. Along with an overall optimistic sentiment from investors, RSM’s Real Estate 360 2022 survey throws up some surprises about where the market is at the beginning of 2022. A gradual uptick in activity is matched by growing interest from investors to stick to what they know; the UK market. 

“Elements of the property industry are booming, a situation that didn’t seem likely a year ago,” RSM partner and co-Head of Real Estate and Construction Stacy Eden said. “The results of this survey support what we hear from our clients. There are plenty of opportunities, notwithstanding continuing challenges. There’s certainly more optimism right now than any other time in the last 18 months.”

The Sectors To Watch

Almost all respondents to RSM’s survey indicated they are focussing on the UK market over the next two years. Eden cited several reasons for this, such as Brexit and the pandemic encouraging investors to stick to what they know. However, almost half of respondents said they would look to the European market in the next two years, indicating that views may broaden as political and economic turbulence subsides.

The sector that respondents predict will experience the most investment growth over the next year is industrial, a trend that follows a strong 2021, Eden said.

“2021 was off the charts for the industrial sector and while we cannot expect 2022 to be so active, it will still be good,” he said. “We’re not yet at the point where prices are too high, so it’s unsurprising that respondents view this as a growth sector.”

Almost a third of respondents also considered that residential would see growth. The market continues to be strong, including assets such as care homes and student accommodation, Eden said, buoyed by factors such as low interest rates and change of societal needs following the pandemic and the inherent shortage of supply.

Another sector that is faring well, perhaps against expectations, said Eden, is offices. While only 3% of respondents felt the sector will see the most investment growth over the next 12 months, 85% expected demand for flexible space to increase. There is strong demand for high-quality office space in a good location, to bring together people who work from home at other times.

“A year ago, I wouldn’t have thought offices would be doing so well,” Eden said. “However, few people would have predicted house price growth of more than 10% in some areas, either. People have become accustomed to what has emerged following the pandemic. To keep people coming to the office will take reliable infrastructure such as good public transport, as well as prime offices that meet their needs. As such, it’s not surprising that 56% of respondents said that demand for grade-B or C space will fall.”

Retail And Cities

Retail has faced a tough time during the pandemic, which the survey results suggest will continue. Only 4% considered that retail spaces will see investment growth in the next year. Eden said that much space will be repositioned, though well-placed retail in local high streets may perform strongly.

“As the changes created by the pandemic continue to settle, questions remain regarding uses a redundant retail space can be put to, such as food and beverage or residential,” he said. “However, the rise of the 15-minute city continues as people want to live, play and work close to their home, which includes retail, leisure and hospitality. It’s all about having everything on their doorstep.”

Overall, there continues to be varying sentiment about where investment is heading across the UK. London again topped RSM’s survey as the destination for investment over the coming year. However, factors such as house price growth in the North West of 16.8% in the 12 months to October 2021 point to significant opportunities in other regions, Eden said.

“As grade-B and C office space becomes redundant, developers will need to consider whether residential might be the best use of the space,” he said. “While house price growth in London has been lower than other regions, our respondents believe that the city will continue to draw residents back once the effects of the pandemic have dimmed.”

The Bigger Picture

For the first time, RSM’s survey included sections on ESG, and diversity and inclusion. Taken altogether, the results present an industry that is embracing these subjects, but still has some way to go, Eden said.

Respondents’ view on how quickly the real estate sector is making progress toward environmental goals was split. While 34% thought the sector is making progress toward achieving net zero by 2050, 42% didn’t agree. Results were more decisive regarding investment: 65% now consider ESG credentials to be essential when looking for investments and nearly three-quarters expect returns on investments to be either slightly or significantly better on portfolios with better ESG credentials.

Turning to diversity and inclusion, results clearly indicate this is a priority for the industry. Almost two-thirds (63%) of respondents believe their business’s plan to address the subject has improved in the last two years and 62% believe it is a priority for senior management.

“Most people think they are making progress from quite a low base, which is encouraging,” Eden said. “However, that leaves almost 40% of people who believe their business doesn’t have a plan to improve diversity and inclusion. There is clearly still a lot of work to do.”

Overall, the survey results point to a sector that is operating with optimism and a plan for the future, Eden said. Barriers to growth will remain; almost half of respondents indicated that taxation is the biggest barrier to growth. While tax regime changes are considered the biggest barrier to investors, the next biggest barrier is the complexity of legislative and regulatory changes, particularly around business rates and stamp duty according to 40% of respondents, up from 16% last year. Eden said that these are areas the industry could continue to lobby government about, including planning reforms, particularly against the potential backdrop of a busy 2022.

This article was produced in collaboration between RSM and Studio B. Bisnow news staff was not involved in the production of this content.

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