Press Release

Operating in the current economic climate is tricky. While the Bank of England held interest rates last month, the borrowing landscape remains tight.

Pricing with confidence, and aligning sellers’ and buyers’ expectations are just some of the challenges facing the UK’s real estate investment sector.

Despite this, Shoosmiths’ real estate investment group has advised on more than £1bn worth of deals so far in 2023. These transactions demonstrate that there is still appetite from investors and funders for the right assets. 

Even in the office market, where deal activity is subdued, we’re seeing attractive schemes come forward. While this part of the real estate market is yet to reach a settling point, developers, operators and investors are adapting and working hard to identify opportunities.

For example, in its latest business update for the six months to 30 September 2023, Great Portland Estates reported strong leasing activity – surpassing its estimated rental value by 13.4 per cent, signing 37 new leases and renewals generating an annual rent of £11.2m. Embracing its ‘customer-first approach’, the London-based property company has launched a £1.1bn development programme targeting the flexible office market.

Commenting at a recent Shoosmiths’ roundtable – Earning the commute: the UK’s flexible office space sector – Steven Mew, customer experience and flex director at GPE, said: 

“We have seen this evolving customer change in need, in the way they use their office space. And, we’ve reacted to that…really leaning into delivering more flexible office space.”

The growth of flexible office space isn't confined to London. Rather, the Instant Group’s 2023 UK State of the Flex Market report reveals that flex occupancy rates across the UK have remained stable throughout 2023, currently averaging 82 per cent.

In August, Lloyds Banking Group signed the largest flexible office deal outside the capital. The bank has taken 59,896 sq ft of flexible space in Birmingham at x+why's Foundry in 6 Brindleyplace – relocating 2,260 staff while its base at 125 Colmore Row is refurbished.

Though the office market is being impacted, tapping into the potential of assets like flex – alongside other opportunities such as life sciences - shows how developers, operators and investors are generating returns while elevated interest rates subdue overall confidence.

Inevitably, we’re also seeing an increased focus on asset classes that are less exposed to current volatility. This shift is clearly evident in the living sector.

According to data from CBRE, £2.3bn worth of assets are under offer in the UK’s build to rent (BTR) sector. And, while transactions slowed in Q3 2023, BTR investment levels were robust in the first half of the year - exceeding the long-term average.

The purpose-built student accommodation (PBSA) sector has also seen an uptick in deals as the year has progressed, with investment into UK PBSA totalling £1bn in Q2 2023 – increasing sevenfold on Q1 2023 when £134.5m was deployed in the sector.

Data from Cushman & Wakefield also reveals that the 2023/24 academic year has seen student accommodation rental growth of 8.02%, with the private sector growing at 9.39%.

With a systemic undersupply of student accommodation in the UK, sectors such as PBSA are showing their resilience – boosting the attractiveness to investors.

In Industrials, Shoosmiths’ real estate investment team has advised Workspace Group on the sale of over £100m of industrial and logistics assets so far during 2023. 

Whether acquiring or disposing of assets, our conversations with investor clients continue to be guided by what they can see in a building. This will always be rooted in core principles such as where a property is located, the type and quality of the asset, or its tenant profile. But it also increasingly comes down to an organisation’s imagination of the asset’s potential.

We’ve seen many clients and other businesses across the sector successfully upgrade, repurpose or even change the use of a building completely to better align it with occupier demands and the wider market.  A recent article in React News, for example, reported on Canary Wharf Group’s plans for its estate.

Yes, navigating the current real estate investment landscape requires a good dose of pragmatism, but there is value ready to be unlocked – it’s just a case of finding the right key.

Nathan Rees is a partner and co-head of Shoosmiths’ real estate investment group.