Member Article

Let’s be honest, it feels gloomy at the moment. The ramifications of 14 consecutive rate rises are now materialising – creating additional hurdles for those seeking funding and bringing developments forward. Rising borrowing costs will always put pressure on the living sector.

However, the UK’s real estate industry is remarkably resilient.

Markets such as build to rent and purpose-built student accommodation still have plenty of room for growth, with historic high levels of investment helping buoy development activity. Housing need in all parts of our communities, whether students, young professionals, families or seniors, is far outpacing supply, all of which creates opportunities.

The impact of the economic turbulence can’t be ignored though. Evidence can be seen in the slowdown in residential development and transactions, with consumers facing higher average fixed-rate mortgages and falling home prices. This situation may well get worse as the Bank of England uses the tools at its disposal to attempt to bring down inflation.

The industry is no stranger to this type of volatility. The last three years have seen it overcome a near-total shutdown during the pandemic and the subsequent impact on supply chains. Those of us who have been around long enough also worked through the 2008 financial crisis.

What these challenges have shown is that UK real estate businesses are more than capable of adapting and innovating in light of changing economic conditions or new and difficult legislative changes.

It is also important to remember that those in the industry do not face these challenges alone. We work hand in hand with client teams and know that our trademark pragmatic and commercial approach is vital to untangling current issues and navigating a way forward.

As many of our experts also discuss in this report, the government has to better recognise the critical role that developers, operators, investors, and the many other real estate businesses play as part of UK PLC. These firms must, therefore, be provided with the certainty and guidance needed to deliver on evolving legislation, particularly where changes are impacting live building projects, such as with the Building Safety Act 2022.

The scale of the UK’s housing shortage cannot be underplayed either, with acute issues in areas such as purpose-built student accommodation, alongside senior living where a shortfall of 487,000 homes is currently projected and likely to grow.

To make any progress towards solving the imbalance in residential supply and demand, a shift in stance is required on multiple factors – the approach to housing numbers, uncertain planning policy, mechanisms for securing consents, and the protection at all costs of the green belt – that are creating hurdles for the real estate industry.

Rather than seeing this as the ‘usual industry moans,’ the feedback of those in the sector could enable the government to better understand the changes in the way people live. This is key to implementing the policy changes needed to unlock more viable development during a period when developers and funders are impacted by external factors and looking to minimise risk.

Now is the time to remain resolute, with the government, industry, and advisers working together to face down challenges. Though difficult, rest assured, we've done this before and will do it again – firm in the belief that the UK living sector's long-term prospects are strong.

Lisa Tye is a partner and co-head of Shoosmiths’ living sector

 

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