The next chapter of opportunity for private investors in the UK
In 2021 the UK was the third largest destination for private capital investment into commercial real estate. London and the surrounding areas were the recipient of much of this. With offices forming a key part of commercial property portfolios, Flora Harley, Deputy Editor of The Wealth Report, asks Darren Mansfield of Knight Frank’s commercial research team about new research examining the latest office market trends for the M25 and South East.
3 minutes to read
You’ve just launched the latest edition of the Knight Frank M25 and South East Office report The Next Chapter 2021. Tell us a bit more about the report and why it’s relevant to readers of The Wealth Report?
Without question, Covid 19 has challenged businesses and society in ways once considered unimaginable. The pandemic has accelerated trends and raised many questions, not least with regard to the future of the office. Our aim in the report was to address the important factors that will we believe will shape business decisions and consequently the market in the coming weeks, months and years.
In 2021, US$11bn of private capital invested in commercial real estate in the UK, over half of this was cross-border. Globally offices were the second largest sector invested in and they form around a fifth of portfolios for UHNWIS. The M25 and south east market offers a lot of opportunity for both institutional and private investors alike. It is therefore imperative that investors understand the shifting dynamics to identify areas of opportunity.
What are the main topics of the report?
We centred the report around three overarching themes: Climate, Connectivity and Community.
Addressing climate change will define market behaviour moving forward. The time for action is shortening and the obligations being bestowed on organisations are growing.
The built environment holds a central role in net zero realisation, with developers and investors targeting efficiencies through design, construction and operation. We tackle the topics of regulation, green finance and e-mobility in the report.
Secondly, we look at connectivity, both digital and physical. Achieving a seamless interaction between people and technology is primary to organisations achieving their ambitions and has meant survival to countless businesses during the pandemic. Understanding the accessibility of high-quality communication networks and services, in combination with skilled staff and new talent, is therefore fundamental in optimum location choice. Our new connectivity index provides a rounded view of both the physical and digital attributes of markets across the South East.
Finally, community. Cultivating business communities and harnessing the ambitions of fast growth organisations creates a course for potential amplified economic growth for towns and cities and supports resilience against disruption. Ecosystems founded on innovation frequently underpin healthy tenant demand and maintains robust rental and capital value levels even during periods of economic uncertainty. Expanding on the Knight Frank Active Capital research, we created an M25 Innovation Index that uniquely examines statistically significant drivers of innovation in relation to the South East region.
What did you find most interesting or surprising when you were pulling together the report?
The breadth of change that the addressing climate change could have behaviours and the market. For example, of all current available office space, 65% does not comply with the proposed criteria of buildings having EPC rating of A or B. Removal of buildings that do not achieve this grade would push vacancy rates to 2.3%, a level never recorded.
Final words….
Covid-19 has accelerated several years of market evolution into months, with the world of work undoubtedly profoundly altered. Offices and office use will become be more individual and tailored to business objectives. Organisations may take less space in the future, but it will be best in class and align with key ambitions such as environmental responsibility. Fundamentally, the office will remain a strategic and essential component of business structure.
How do I find out more?
The full report and articles can be found here. We will be adding further content throughout the year, so do keep checking in.
Please contact Darren Mansfield, Emma Goodford or Simon Rickards to discuss further