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In 2021, there will be an end to (or at least a diminution of) Brexit-related uncertainty in the investment market.
Many market trends were already in motion before Covid-19.
The uniqueness of the Covid-19 period in 2020 has led many commentators to suggest that things will be markedly different going forward. However, the performance of most commercial occupational and investment markets this year has been typical of past recessions, and this leads us to conclude that 2021 and beyond will be very recognisable to anyone who has worked through previous recovery phases of the UK property market.
This does not mean that changes will not be taking place, but that many of these changes will be a continuation or acceleration of trends that were already present in the market before Covid-19. For example, as our chart on page 8 shows, 2020 has seen an acceleration of the divergence between logistics and retail yields that has been happening for much of the past decade. The record high levels of leasing activity in the logistics market in 2020 will drive even more investor interest in an already crowded sector, and thus put further downward pressure on yields.
RETURN TO THE OFFICE
The office sector is seen by some as being most likely to be hit by new behaviour post-Covid-19. However, virtually every survey that has been done of office workers suggests that most will continue to spend the majority of their working week in traditional CBD offices. While this return to normality is unlikely until a vaccination programme has been widely rolled out, it will support investor demand for what is still the largest commercial property asset class.
In 2021, there will also be an end to (or at least a diminution of) Brexit-related uncertainty in the investment market. The non-domestic investors who have stayed away from the UK because of this uncertainty will definitely look favourably on the UK once this happens, as many sectors are now looking comparatively attractive in terms of both pricing and income security.
THE RISE OF ALTERNATIVES
The final trend that was present pre-Covid-19 that will see an acceleration in 2021 is the rise of alternative asset classes. We expect to see more attention being paid to data centres, any asset with a health or science badge, and multifamily housing in the UK. While most of these segments are still pretty small in the UK, they may offer the change of use opportunity that retail landlords will be looking for next year and beyond.
Commercial property prime yields
Covid-19 has accelerated structural changes that were already happening.
Commercial sector outlook 2021
Our at-a-glance summary of how we see commercial assets behaving in the coming year.
Hear more about Mat’s views in our latest podcast here.
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