‘The future of property is bright’: Businesses seem confident in resi real estate’s prospects

Consultancy's survey indicates optimism is rife, despite the shenanigans of 2014-16

There may be economic uncertainty ahead (and behind, and all around) for the UK and the world, but “optimism in the UK property sector remains strong,” according to a survey of senior execs in the property world.

62% of respondents to Smith & Williamson’s property survey 2016/17 described themselves as “reasonably” or “very” confident in the residential property sector – down from 75% the previous year.

That higher-than-expected level of optimism is probably down to the UK’s on-going housing shortage and a currency-driven spike in interest in central London property from overseas buyers, says the firm.

There is a more pronounced slump in confidence when it comes to the prospects of the commercial property sector. Just over half (54%) of industry execs felt confident about the outlook for commercial property, down from 72% last year. This reflects the sector’s greater exposure to international market forces, including the possibility that some financial services tenants will relocate away from London if the UK leaves the single market.

Despite the overall fall in confidence, S&W argues that “it is a stronger result than expected, especially since a number of commercial property funds suspended trading for a while after the Brexit vote”.

Unsurprisingly, given Brexit etc, the future of the UK economy was listed by over half (51%) of respondents as their greatest business concern for the coming year(s). Rising costs as a result of the pound’s weakness, and the associated squeeze on margins, were flagged as an area of significant concern by 61% of those surveyed.

Labour shortages are also causing headaches: more than half of respondents (55%) highlighted skills and labour shortages as a potential risk.This relates to the fact that Eastern European migrants make up a large proportion of the UK’s construction workforce. If immigration is reduced as a result of Brexit, there is a possibility that the industry’s labour supply could be severely stretched – particularly if certain large-scale infrastructure projects, such as HS2 and a third runway at Heathrow, go ahead.

But it’s not all about Brexit; the planning system is seen as the largest obstacle to growth in the property sector. 60% of survey respondents name planning as either their first or second most important issue over the next five years. As the Federation of Master Builders told us a couple of weeks ago, a majority of developers believe planning departments to be under-resourced, and the process is deemed “heavy-handed” for SME builders (reads all about it here).

The UK’s on-going shortage of housing stock continues to cause concern and government measures to address it appear to be having little effect at present. More than half of respondents (57%) put the release of surplus public land for development among their top three priorities to boost supply. Better collaboration between developers and housing associations could also make a positive difference.

While blaming policy and macro stuff is all well and good, it’s no way to do business. As such, design and build types seem one doing a pretty good job of evolving and exploring new manufacturing and construction practices.

57% Smith & Williamson’s respondents are already using off-site manufacturing while 46% have invested in building information modelling, and 18% are engaged with modular flat-pack homes. When asked what will be the next big thing to impact the property sector, more than half (55%) of respondents point to new materials, such as printed soil and cooling bricks.