Blog Post No. 204
Millennial Impact, Downsizing Dilemmas, Sustainable Real Estate Trends – 17th Oct Property Bulletin
The volatile and costly private lettings market in London is attracting investors to the commercial property sector, with a recent study in the £1.8 trillion sector shedding light on the changing dynamics.
Commercial property leases for shops and offices often have longer durations and lower tenant turnover compared to the residential sector, making them more appealing in the current challenging housing market environment. This shift comes as landlords and tenants adjust to the end of the era of cheap mortgages, following 14 consecutive Bank of England interest rate hikes that increased rates from 0.25% in December 2021 to 5.25%.
A balanced portfolio of residential and commercial property can help mitigate risk for investors in the property market. Furthermore, rising demand for office and retail space is making commercial property more attractive. Specialized financial services firm Shawbrook conducted research exclusively seen by The Standard, revealing that nearly one-third of London-based landlords looking to expand their portfolios are contemplating a switch to commercial property.
Among those considering commercial property, 39% are interested in larger retail spaces, narrowly followed by 38% looking at smaller shops, and 37% considering office spaces. Industrial space also has its share of interest, with 29% of prospective investors exploring this segment.
As the appeal of commercial property investment grows, existing investors in the sector are planning to expand, with over a third of them looking to increase their portfolios. The rise of hybrid working is playing a role in increasing demand for office space, particularly as businesses seek premises outside traditional city centers, even as the return to work gains momentum.
Emma Cox, Head of Real Estate at Shawbrook, noted the advantages of commercial property, including longer-term leases and higher rental yields compared to residential properties. The commercial property market encompasses various segments, including industrial, office, and retail properties, each with distinct dynamics.
The research also highlighted that landlords are eager to support their local communities through commercial property investments. Many investors looking to buy shops view this move as an opportunity to contribute to the revitalization of the high street post-pandemic, with a surge in tenancies from local, independent, and experiential stores. This approach positions landlords as potential contributors to the revival of local business and community life.
Many older homeowners in the UK find themselves trapped in large properties that no longer suit their needs, with the cost of moving, particularly stamp duty, and a lack of suitable alternatives hindering their ability to downsize.
The cost of relocating can amount to tens of thousands, if not hundreds of thousands of pounds, making it financially challenging for older homeowners to make the transition.
A significant percentage of people over the age of 65 live in “under-occupied” homes, according to the International Longevity Centre, a research institute. This has led to growing calls for government intervention to free up larger family homes for younger buyers, potentially helping to address the housing crisis.
Former Cabinet minister Damian Green recently proposed the idea of incentives for “last-time buyers,” including potential stamp duty relief when downsizing to release family homes. Research from the Centre for Ageing Better indicates that around four million older people want to move but only a fifth of those aged over 50 expect to do so.
Challenges in finding suitable housing for downsizing are a key obstacle for many older homeowners. Options like two-bedroom retirement apartments may not be attractive to those who are still active and working. The lack of available properties that meet their preferences, such as space for guests and a garden, further complicates the downsizing process.
While stamp duty relief could encourage older homeowners to downsize, the real issue lies in the limited availability of suitable housing options. Addressing this challenge is crucial for creating a more balanced property market and ensuring that older homeowners have viable alternatives for downsizing, thereby freeing up larger properties for younger families.
For many older homeowners, being able to downsize and find a suitable, cost-effective alternative is crucial. The potential for tax incentives is seen as a minimum requirement, but it’s equally important that there are suitable and appealing housing options available to make downsizing a viable and attractive choice.
In the heart of Prime Central London, a generational shift is taking place as millennials, often recognized for their digital proficiency and an appetite for unique experiences, are transforming the landscape of property ownership and renting.
As this cohort of individuals born between the early 1980s and mid-1990s reaches financial maturity and seeks stability, their distinct preferences, values, and financial considerations are leaving an indelible mark on one of the world’s most prestigious urban property markets.
These are the key trends that illustrate the millennial impact on property ownership and renting in Prime Central London:
Millennials are redefining real estate preferences in the region. Their priority is not just on owning property, but on experiences, flexibility, and vividity. This mindset has led to a surge in rental demand. Economic factors, including student debt and a highly competitive job market, have prompted many millennials to delay homeownership. They prefer the adaptability of renting to maintain career mobility. Moreover, proximity to workplaces and cultural centers holds paramount importance. Their tech-savvy nature and environmental consciousness drive them to seek smart, sustainable living spaces. Concepts such as co-ownership and community-centered living arrangements are gaining traction as millennials look for collaborative and community-oriented housing solutions.
The economic realities that millennials face have led to a delay in homeownership. This calculated choice grants them the freedom to pursue professional prospects without committing to a fixed location. The consequence is a notable upswing in rental demand, reflecting the evolving priorities and financial circumstances of this influential demographic.
Focus on Location:
Millennials prioritize location above all else. They seek proximity to work, cultural hubs, and efficient public transport. The vibrant atmosphere and rich cultural scene of Central London align seamlessly with their preferences. Their emphasis on convenience and accessibility is reshaping the real estate market, driving demand for properties offering urban connectivity and a vibrant neighborhood experience.
Being known for their tech-savvy approach to life, millennials are inclined to seek properties equipped with the latest smart home features and amenities. In response, Prime Central London has embraced this trend with a multitude of technologically advanced developments.
In terms of property ownership, millennials are exploring innovative approaches:
Co-Ownership and Joint Purchases:
Collaborative strategies such as joint purchases and co-ownership arrangements with friends or family members are gaining traction. These approaches enable millennials to enter the property market while sharing the financial responsibility, easing the financial burden, and fostering a sense of community and shared investment.
Emphasis on Community Living:
A sense of community in living spaces is a priority for millennials. Properties with shared amenities and communal spaces are particularly appealing. This trend reflects their desire for social interaction, collaboration, and a sense of belonging, with developers responding by creating spaces that facilitate a strong sense of community.
Environmental consciousness is a key factor for millennials. Properties in Prime Central London that incorporate sustainable features, such as energy-efficient appliances and eco-friendly building materials, are particularly appealing to this demographic.
Long-Term Investment Perspective:
While immediate homeownership may not be a priority for many millennials, they recognize the long-term value of real estate. Some are exploring options like property crowdfunding and real estate investment trusts (REITs) to gain exposure to the property market while maintaining financial flexibility.
In the realm of renting, millennials are seeking:
Demand for Flexibility:
The flexibility offered by renting aligns well with millennials’ dynamic lifestyles, allowing them to adapt to changing circumstances, whether pursuing new career opportunities or exploring different neighborhoods within Prime Central London.
Furnished and Serviced Apartments:
Furnished and serviced apartments have gained popularity among millennials in Prime Central London. These apartments offer a hassle-free living experience with amenities that enhance the rental experience. Flexible lease terms and the availability of essential furnishings cater to millennials’ dynamic lifestyles.
Co-living arrangements, where residents share communal spaces and amenities, have gained traction among millennials, fostering a sense of community and often including perks like networking events and wellness programs.
Embracing the Sharing Economy:
Some millennials are open to utilizing sharing economy platforms like Airbnb for short-term rentals, allowing them to monetize their living space when they’re away and potentially offset some of their rental expenses.
The future of millennial influence on Prime Central London’s property market is undeniable. Their unique preferences and values are poised to drive significant changes in the real estate landscape. Developers and property owners are likely to craft inventive, technologically advanced, and community-centric spaces tailored to the needs of this dynamic demographic. As Prime Central London continues to maintain its status as a global real estate hub, the trends established by millennials are expected to have a lasting impact on the area’s property market well into the future.
In the ever-evolving landscape of the housing market, uncertainty looms large, leaving potential buyers and investors pondering the ideal moment to make their move.
Amidst these challenges, however, the capital city still boasts significant prospects. A seasoned property expert anticipates that these opportunities will only expand in the upcoming year.
Alistair Brown, the renowned property expert representing Alistair Brown International Real Estate (ABIRE), sheds light on the areas within the City that he believes hold great promise for buyers and investors.
“As an investor, I am currently drawn to the East End, specifically Tower Hamlets, Blackwall, and Newham. The ongoing gentrification and favorable urban planning in these areas augur well for growth. Moreover, the accessibility to reliable and consistent transport infrastructure eases travel to all corners of London.
“For those seeking to invest, I recommend identifying streets or roads likely to feature in the next development plan – that’s where the financial potential lies. A proficient local estate agent can guide you in locating such areas, a strategy applicable across the city.
“Venturing across the river to Southwark, Canada Water, and Rotherhithe also presents compelling opportunities. These regions offer excellent access to both overground and underground transportation networks. A surge of urban renewal is transforming this area, and I appreciate the fresh vibrancy it now exudes, closely connected to all lifestyle amenities.
“Currently, property pricing in most areas of the city remains relatively stable, with exceptions for luxury markets. Consequently, homes under construction represent the best value proposition, and developers often provide incentives as projects near completion, especially during this season.
“Another hotspot worth noting is parts of West London in the vicinity of Brent Cross. A large-scale, long-term development plan is underway, offering an array of home styles and prices suitable for every buyer or investor. Backed by robust financial support, this endeavor is poised for success, introducing novel property forms and types to satisfy diverse preferences.
“Crouch End, an area sometimes overlooked by many, has been gaining traction. Earlier this year, it was recognized by the Sunday Times as one of the best places to live in the country, further enhancing its desirability. The region boasts a distinct cultural scene, a variety of supermarkets, independent businesses, green spaces, cafes, restaurants, a lido, and Victorian houses. Its streets exude a market-town ambiance and a warmth that is often elusive in the bustling capital – something that’s truly priceless.
“Looking ahead, the forthcoming launch of The Elizabeth Line will enhance the appeal of certain destinations. Keep an eye on both ends of this line for significant investment opportunities.”
In a property market characterized by flux, these insights from Alistair Brown provide a valuable compass for those considering their next move in the real estate arena.
Architects and developers are increasingly embracing sustainable design practices in response to the growing focus on Environmental, Social, and Governance (ESG) factors within the commercial real estate sector.
ESG considerations have become essential for managing asset risks, and investors are demanding greater sustainability and adherence to environmentally responsible principles. This shift is driving a concerted effort toward sustainability and energy efficiency, particularly as stricter energy codes loom on the horizon in cities across the nation.
Multifamily developers and property owners are recognizing the importance of investing in sustainability and decarbonization to reduce long-term operating costs, benefit the environment, and enhance residents’ quality of life. As Nate Thomas, Director of Sustainability at The Architectural Team, points out, new regulations and codes are serving as a catalyst for a swift transition toward reducing emissions and adopting regenerative architecture and development models.
Previously considered niche design strategies focused on decarbonization and high energy efficiency are on the verge of becoming mainstream. Thomas predicts that within the next five years, more than half of new multifamily projects will adopt the “Passive House approach,” particularly in affordable housing developments where energy efficiency is tied to incentive programs. Passive House principles not only reduce operating costs but also improve indoor air quality and reduce noise pollution, making these buildings more attractive to potential residents.
Deep energy retrofits are becoming standard practice for older buildings, especially as the imperative for code compliance outweighs the initial costs. Careful planning and cost analysis are crucial to ensure that the budget allocation and project schedule are appropriate. Thomas notes an emerging synergy between deep energy retrofits and the repositioning renovations of older properties, essential for future-proofing affordable housing stock.
For instance, Thomas highlights the adaptive reuse of the historic Stone Mill complex in Lawrence, MA, which incorporates an all-electric, low-carbon design, a highly efficient heating and cooling system, insulation, and triple-glazed windows. This retrofit substantially reduces the property’s energy consumption and long-term carbon footprint. Upgrading existing buildings is considered essential to achieve carbon emission reduction targets set by local, state, and national leaders.
Another emerging trend is the measurement of carbon footprint and the pursuit of Net Zero buildings. Owners and developers are increasingly required to have systems in place to monitor and report carbon data, driven by initiatives like Boston’s Building Emissions Reduction and Disclosure Ordinance (BERDO). This aims to reduce greenhouse gas emissions in large buildings, ultimately reaching net zero emissions by 2050. Such performance-based standards also encourage the use of local and sustainable materials, offering building teams greater flexibility in specifying materials that meet these criteria.