9th March 2020

The Big Debate – Building into the next decade

Martin’s Properties recently hosted a debate, chaired by CoStar News and attended by experts from across the development, investor, agency, engineering and consultancy community, focused on what real estate development will look like in the future

A cross-section of senior figures from development, construction, engineering, agency and research recently met to discuss the challenges and opportunities facing the construction industry as we enter a new decade. The debate was hosted by Martin’s Properties at KPMG’s exclusive office development, No. 20, in London’s West End and focused on topics including design, location, flexibility, lease structures and much more. CoStar News was on hand to moderate.

Host: Ross Walker-Love, Martin’s Properties
Chair: Paul Norman, Editor, CoStar News

Attendees:
Rob Bray – Bray Fox Smith
Terry Crawford – Forcia
Gary Elliott – Elliottwood
Gráinne Gilmore – Zoopla
Alun Macey – Pocket Living
Tom Mann – Savills Development Consultancy
Mike Rayner – Simten Developments
Paul Cooke – Thomas Sinden
David Westwood – OD Projects
Warwick Hunter – Henley Investments

CoStar: What were the key features of the last decade for real estate development?

The room was equally split on sentiment towards the last decade, with developers notably upbeat, particularly in comparison with the decade previous. Simten’s Mike Rayner surmised the decade for developers: “If you put money into a scheme in 2010 and exited in 2020 it would have been commercially successful.”

Martin’s Properties Ross Walker-Love and Zoopla’s Gráinne Gilmore said the past decade had seen a greater focus on alternative and less traditional sectors including the moves towards co-working, build to rent and senior living and the wider theme of age appropriate living.

Pocket Living’s Alun Macey agreed that as the industry embraces these new markets and focuses on innovation, there is a real opportunity for the sector as a whole to benefit from technology.

From a residential view point, Tom Mann of Savills observed that the last decade saw values across Prime Central London increase by 80% – the highest growth on record. However, since their peak prices have slowly contracted due to government taxation policies including changes to inheritance tax and the introduction of higher levels of stamp duty.

Across the UK, the last decade saw an emerging rental sector which has grown from 10% to 20% over the past two decades, with the potential to grow to 23% in the next five years. The last decade saw an increased delivery of housing and a rise in first-time buyers but despite low levels of interest rates, there are still affordability issues across the residential market.

Policy interventions were cited by all as a key challenge to the sector, be it housing design guides, fire safety regulations or wider government taxation policies. From a construction point of view David Westwood noted that tight construction margins place huge importance on turnover, and efficiency in construction is key to achieving this. He warned that in a climate where policies are constantly changing this poses greater risk to contractors. Policy changes were also deemed responsible for the reduced quality of product across the market as developments were being ‘designed by spreadsheet’ and compliance.

Tom Mann and Thomas Sinden’s Paul Cooke commented that innovation across the sector is an opportunity, as the industry looks towards greater innovation and a return to quality. The opportunity here is coupled with a greater challenge across the construction industry in a post Brexit world as the workforce is anticipated to significantly reduce. The challenge will be in leveraging technology and innovation to overcome a changing workforce. It was noted that presently the standard and quality of what can be achieved is too disjointed and poses a high risk for developers.

It was argued that whilst there is a monopoly on volumetric providers, it is hard to see technology and innovation dramatically impacting the sector in the short term. Forcia’s Terry Crawford urged caution with regards to modular construction due to the uncertainty of the building’s long term durability as an investment, particularly due to the potential for repurposing. Rob Bray of Bray Fox Smith noted that “outside of London in the South East there is greater appetite for modular construction as there are fewer land constraints and therefore the benefits of a shorter construction period allow a scheme to be brought bear earlier”.

Gary Elliot from Elliotwood agreed that innovation and technology need to play a greater part in the next decade, in particular when it comes to the environment and reducing embodied carbon and making the entire construction process more efficient by constructing buildings with longer life spans. Gráinne Gilmore added that as with other industries it will be “consumer pressure which will translate into a desire for more sustainable buildings that will lead to policy changes that will ultimately be the driving factor for innovation within the industry”.

Paul Cooke and Alun Macey supported this and have witnessed an increased appetite from clients and tenants for sustainable buildings. And an increased proliferation of ‘green funds’ by more and more banks which demand sustainable methods in both construction and the ongoing maintenance of buildings.

In the short-term the introduction of innovative methods of construction brings with it higher costs, this, coupled with increased fire regulations, a diminishing workforce and ongoing uncertainty around traced deals and pricing of raw materials represent an immediate challenge for the industry. Terry Crawford also cited “competing factors between consumer demands for acoustics and fire precautions as a factor driving up prices”.

The contractors in the room viewed a diminishing workforce as the largest challenge to the industry.

David Westwood said: “The rise in the tech and gaming industry has had a major impact on recruitment in the industry as contractors compete for the next generation of talent. And it is those very individuals that would provide a huge opportunity for the industry as they represent the potential to drive efficiency through the use of technology.”

Paul Cooke agreed that the biggest challenge would be in rolling out apprenticeships and attracting talent straight from school.

Tom Mann suggested the biggest challenge for the next decade is in planning and how local plans are interpreted alongside the need for more high quality planning officers. “There is a lack of ownership of positive change. The most under-used land in London is owned by the local authorities but estate regeneration has become a toxic term rather than the idea of betterment. Politics needs to be taken out of housing, it can’t be subject to the electoral cycle.”

Ross Walker Love and Warwick Hunter suggested changes to planning to increase the intensification of sites and mixed-use schemes was a sector with huge potential.

Rob Bray highlighted the importance of transport within this, picking out Crossrail as an example of infrastructure improvements that had bolstered many locations across its route. Bray also warned that the challenge will be retaining vibrancy in the city centre as more office developments look to provide a mix of amenities under one roof.

Whilst the industry tackles its employment and innovation challenges, Gráinne Gilmore suggested that the key themes for the next decade, with a focus on the residential sector, would be “affordability, and the need for a stable policy environment”. She added: “Policymakers should focus on increasing the breadth of housing choices across tenures and improving the opportunities for homeowners to move up and down the housing ladder.”

In the immediate term Mike Rayner noted: “Capital is going to change how we view sustainability as funds look for sustainable trophy assets. There is also a concern that due to the sheer weight of money ready to invest that developers will pay more for sites which will eat into the budget for construction.”

Martin’s Properties said it remained dedicated to development both of existing assets and in potential sites which represent challenging planning issues.

By Paul Norman
pnorman@costar.co.uk