The UK Real Estate and Infrastructure Forum (UKREiiF) is one of the key events in the property calendar, a chance to meet with peers from across the industry and get their take on the current lay of the land.
The clear message, from my perspective, was that while deals are still happening, it’s taking a more concerted effort – and a little more creativity – to get them over the line.
A common concern expressed across the forum centred on land deals. At the moment, building new properties from scratch seems increasingly difficult – getting the sums to add up can feel like a tall task, even before you consider the additional hurdles presented by the creaking planning system.
Nonetheless, there’s plenty of appetite to push on with property projects, which means investors are instead looking at stranded assets, properties which currently aren’t delivering against their potential. While there will inevitably be some sort of refurbishment involved, potentially to open up a change of use, getting these projects up and running is often more straightforward and economically viable than building something brand new.
CONSIDERING VIABILITY
On that subject, viability is a big watchword among the industry at the moment. Property professionals face a host of challenges currently, all of which need to be considered carefully.
There are the rising costs on everything from skilled labour to materials, the mounting regulations to keep on top of, and the affordability constraints which will impact the potential sale of any asset.
All of those challenges can have a real impact on the ultimate success of the project, which is why we see investors being more vigilant at the outset, weighing up not just the viability of the project in the current environment, but also how it could work if the situation deteriorates further.
It means more caution and consideration before moving ahead with opportunities, but also translates into complete determination and focus once the project is underway.
LOOKING FOR SAFER BETS
Given the uncertainty around, investors are understandably looking for sure bets, the assets that are most likely to ride out any underlying turmoil. And the clear message from UKREiiF was that residential property, whether targeted at renters or owner occupiers, is seen as the most resilient.
As one person put it to me, anything with a bed is seen as a safe option by institutional investors. When you step back and consider that the end users, the homebuyers and tenants, are the ones facing such stark affordability challenges, with yet more rising bills on the way, it is remarkable just how attractive residential property remains. What’s more, with little sign of a great uptick in new property supply, demand is only likely to increase further still.
PICKING PARTNERS
Property projects can live and die based on the partner firms involved. But that extends beyond the contractors doing the refurbishment work – the funding partners are critical, too.
This was emphasised by the conversations at UKREiiF – those who worked with lenders who take the time to understand business plans and demonstrate forbearance were full of praise for their funding partners.
By contrast, there were those who had worked with lenders who rely on low headline rates, but who aren’t able to deliver the ongoing support required, leaving their borrowers and advisers underwhelmed by the experience.
It’s an important reminder to lenders of the importance of delivering a more comprehensive service, rather than putting undue focus on an eye-catching rate.
GETTING CREATIVE
Finally, creativity is key. The old ways of structuring deals increasingly don’t work in the modern market. They aren’t flexible enough, and don’t allow for the individual circumstances of the borrower or what they are trying to achieve.
The only way forward is to be more creative. That means coming to deals with an open mind and a blank sheet of paper, looking for ways to structure the case so that it can work, rather than trying – and likely failing – to make it fit into the deal parameters of old.
There was real positivity at UKREiiF and appetite to push on with property projects. But that can only happen if we accept that it’s time to move on from the old model, and embrace a fresh, more bespoke approach.
