2021 – a great year to be a property developer
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Property development is counter-cyclical. The optimum time to get into the market is when prices are falling (or forecast to fall). Land prices were high going into the pandemic, compressing margins and making it difficult to turn a profit. There is a new reality with (most) landowners in the market and that is music to the ears of any developer.
If you’re currently looking at land opportunities, we will be two to three years into the future by the time you’ve gone through planning and built your project out, and the current issues we face should be a distant memory.
In the meantime, although 2021 hasn’t started as most of us would have liked, there are plenty of reasons to be optimistic if you’re a property developer. We examine some of the main issues likely to impact the property industry over the next 12 months and beyond.
The one beacon of hope. They are on the way and, while we may always have to live with Covid, once the majority of the population is vaccinated over the next few months, we should be able to return to something approaching ‘normal’ life.
Office to Resi
Whatever the new normal is, and it will take time for us to understand the full implications, one thing is for sure – there will be plenty of opportunity. Office space is the obvious target, with some commentators forecasting we will only need between 60% and 80% of the office space we used pre-Covid.
That means somewhere in the region of 250 million to 500 million square feet of office space in the UK could become vacant.
With the government looking to continue to simplify the planning process, developers could and should benefit.
The simplification of the class use system, promotion of air rights and generous permitted development rules should mean this is a huge growth area in 2021.
The government is hugely supportive of the construction industry; evidenced by never shutting the construction industry in lockdown 1 and the stamp duty holiday now. It is vital that this continues in a post-Brexit Britain and all the signs are that it will.
The construction industry, especially at the SME level, is one of the few industries where the majority of the income generated stays in the UK. Building houses is a full-circle win for the UK economy.
While construction was never fully shuttered, things did slow down, so the housing deficit will have increased this year. Various forecasts put the need for at least 300,000 new houses per year, every year for the next 10–15 years. And this government, more than any other in recent memory, seems to believe that the SME sector is a key part of this delivery programme.
The last recession was created out of a freeze in credit markets. This time is completely different.
There is still a large amount of liquidity and, with low interest rates needed for probably the next decade or more to help governments repay their huge pandemic-induced borrowing piles, property lending is an obvious haven for investors.
We do expect things to get tighter in the coming months due to the prevailing economic conditions and the underperformance of some development sites that were negatively affected by lockdowns.
However, due to most lenders lending at lower volumes than normal in 2020, there is a pent-up supply and the message we’ve been getting during the first couple of weeks of 2021 is that they are very much open for business.
As most readers should know, Brickflow is trying to do its bit for the SME sector by making it quicker and easier to access development finance. Users can search and apply to multiple lenders in minutes on the platform, cutting out months of lost time, effort and pain, while also ensuring they are not overpaying for their funding.
But there are plenty of other tools and software platforms that can help developers on their journey as well.
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