UK: 2019 Real Estate: The New Year Hangover

Last Updated: 18 January 2019
Article by Emma Broad, Sarah Lynn Peock and Lisa Cruickshank

After any good party there's normally a hangover. 2018 may not have been the best of parties for everyone but its effects are likely to continue to be felt by the property industry in 2019.

Disorientation

As the market swings into action in 2019 it could be forgiven for feeling a bit disorientated.

The obvious cause is, of course, Brexit. At the time of writing, we still don't have a clear exit strategy. Without details of what the post-EU landscape will look like stakeholders have few signposts to help them navigate their way. What we do know is that, since property law is largely domestic in origin, the biggest changes for real estate are likely to be commercial rather than legal.

As a firm we have seen a number of reactions from the market. These range from overseas investors taking advantage of the currency play to others adopting a more cautious approach and using Brexit to negotiate more favourable terms.

However, it is worth bearing in mind that, while the UK may be preoccupied with Brexit, there are plenty of other disrupters at play. In Scotland there are renewed calls for a second referendum; further afield regulatory changes in places such as China could affect the flow of investment into our domestic market. Add to this trends such as the move from property as just bricks and mortar to property as a service (think serviced offices and PRS) and the rebalancing of the negotiating strength of landlords and tenants and you can forgive a little confusion as to where the market is heading.

Pain

The retail sector is waking up to a headache in 2019. Faced with fierce competition from online retailers and weighed down by business rates, traditional retailers are having a hard time.

There is, however, some hope on the horizon. The Autumn Budget announced plans to introduce a digital services tax which could help even out the playing field and there are renewed calls for reform of business rates. The difficulties in the sector are also forcing landlords and tenants to start working together to make retail a success in part through flexible and innovative lease terms. Arguably this forced period of reinvention might be just what is needed to build a new retail model fit for 2019 and beyond.

In addition there is the chronic pain of our ongoing housing crisis. This incorporates two separate issues: volume and fairness.

While the government is pushing for more houses, delivery is still not where it needs to be. As a result, political pressure for investment into housing, especially affordable, will continue. This could be a good thing for housebuilders. Equally there is ongoing scrutiny of the planning system and ever-growing institutional interest in alternative housing delivery models such as build-to-rent.

Going hand in hand with the drive for volume is a push for fairness. This is seen most clearly in England, where the proposed cap on ground rents and ban on the sale of leasehold houses grabbed the headlines in 2018. Notwithstanding Brexit, these proposals will continue to be driven forward in 2019 and it is likely we will see other UK initiatives to improve consumer satisfaction in the forthcoming months.

Thirst

The government's thirst for transparency also looks set to continue this year. We are likely to see further progress with proposals for a new UK-wide register detailing the beneficial owners of overseas entities that own or let UK property.

In Scotland there are plans to go even further and create a register detailing all controlling interests (whether domestic or foreign) in Scottish land.

Both registers are due to launch in 2021 and further details are likely to emerge in 2019. Given that there are to be criminal and commercial sanctions for failure to comply, affected stakeholders will want to follow developments closely.

The thirst for transparency will probably not stop here. There are other initiatives, such as the new service charge code (due to take effect from April 2019), that suggest that within the market there is a growing emphasis on improving standards for consumers.

Adapting to these changes may be uncomfortable for some.

The recovery

The disorientation, pain and thirst of a hangover can be unpleasant, but at some point comes the realisation that things are going to get better. It is the same for real estate.

While we are going through challenging times, UK property still has a lot going for it – a respected legal system, depth and breadth of market product, attractive global positioning and competitive pricing. So perhaps the most important trend to continue this year will be the resilience of the market and its ability to adapt and thrive in changing times.

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