A new term: how real estate feels about the big return to work

After Covid-19 all but crushed much of the real estate market during lockdown, property professionals are heading back to their desks – at home or in the office – hoping for an upturn. Kevin Aitchison, chief executive of Knight Frank Investment Management, is bullish over the outlook for prime assets. Bold buyers may find now is the time to head into UK real estate, he said, with interest rates expected to remain low and increasing liquidity likely to inflate values. But he expects a growing gap between the best assets and the rest. “We see a continuing divergence between prime and secondary,” Aitchison added. “People have naturally become very risk-averse and I would not be surprised to see some further outward yield movement between now and the end of the year for the majority of assets that have void or short-term expiries.” At Hines, UK head Ross Blair is gearing his team up to focus on getting new developments out of the ground. The company has office, retail, logistics and residential projects due to start on site in the coming months, although Blair sounded a note of caution over the logistics of doing so. “Often the best time to start new projects is when you feel most uncomfortable about doing so,” he said. “We are in a low-vacancy environment, which certainly helps in assessing how your product will fare, but there are plenty of hurdles right now. These range from the ability to get sites fully mobilised, to how to make specification decisions for buildings not completing for two years, and how to finance them for maximum flexibility.” For office-focused investors, all eyes will be on how many people return to the workplace in the coming weeks, and how that starts to reshape corporate occupier needs as the government kicks off its “back to work” campaign. “Naturally with Covid a lot of the… rental conversations slowed down, and we are just picking them up again now,” said James Saunders, chief executive of Quintain. Having let 60% of its first office building at Wembley Park Boulevard, Saunders is hoping to secure tenants for the remainder before the end of the year. However, the marketplace remains “challenging”. “A lot of occupiers are rethinking their office requirements,” he said. Addleshaw Goddard’s head of London, Leona Ahmed, is upbeat – office demand will hold up, she said, as “people ultimately like people and are not ready to spend their days at the kitchen table in their PJs”. But the capital needs to do more to show investors and occupiers that it is moving past the pandemic, she added. “London’s position as a tier-one city will be challenged if the City does not remind the rest of the world that it is here, ready, willing and able to do business.” Many investors will be tackling the issue of remote and office-based working within their own companies as well as in their portfolios. Schroders real estate head Duncan Owen is preparing to return to the office next week after a holiday and subsequent quarantine. He hopes the office will be more sociable than earlier in the summer, to “get momentum back as quickly as possible”. But with the fund manager having told many staff that they can now work remotely indefinitely, he is preparing for a different approach to work and the workplace. “I used to go in to do some work, whereas I think I’m likely to be going in now to meet with investors, colleagues and counterparties, and might do report writing and analysis at home,” Owen said. “We in the industry need to be more agile.” To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette Photo by Alex Lentati/LNP/Shutterstock