CBRE recently published its 2021 Real Estate Market Outlook where we forecast that 2021 will herald a new chapter for UK real estate. With a new trading basis agreed with the EU and the roll out of the COVID-19 vaccine, UK real estate and indeed London itself has a lot to feel optimistic about.
Our own Lord Mayor of London, William Russell has pledged to hold a ‘reopening week’ in April in London’s Square mile, breathing life back into the bars, restaurants and other hospitality venues which have remain largely empty during a long Covid winter. With a vaccine being swiftly rolled out, this year brings with it strong hope that the City will be able to restore both its social and economic vibrance as Spring dawns.
For the financial services sector, for which London holds the crown as one of the largest global players in IPO activity and currency trading, Brexit has not been the death knell which some predicted, although we still await clarity on the post-Brexit road ahead for the sector. A recent FT survey of 24 large international banks and asset managers found that the majority of firms had actually increased their London headcount over the past five years. With firm government support to help the City improve its standing internationally and consultations due into company listing rules and the fintech sector, there is no reason why London should not be able to maintain and even elevate its status as a global player.
Preliminary Central London office investment figures in Q4 2020 totalled £4.3 billion, which is only slightly behind Q4 2019 and the 10 year average, which is remarkable given that it was prior to the Brexit deal being agreed and in the midst of the pandemic. This is indicative of a positive bounce-back for market activity as confidence swiftly returns. The majority of this investment was made by overseas investors and looking forward to 2021, we expect that we will see pent up demand from international investors wanting to come into the market resulting in volumes being higher than those seen in 2020.
On the London office leasing side, the lack of demand in 2020 has been principally caused by deals being deferred rather than cancelled. With a return to more normal levels of business activity likely in the second half of 2021, we are likely to see much of this pent-up demand translating into leasing activity with the rental recovery to happen soonest for the newest, highest-quality space. Intelligence from our recent EMEA Occupier survey, indicates that elements which support health, hygiene and wellbeing are likely to become a highly important building selection criteria going forwards. Occupiers will also be looking more at buildings which offer flexibility, shared meeting space and wellness features such as enhanced air quality and sustainable design.
On the retail front the real estate market has been hit badly by the pandemic. However, this sector above all others has also experienced a dramatic acceleration of trends already present in UK retail prior to Covid. The clock won’t be turned back and we have seen a number of established names disappear forever, but shopping streets are the lifeblood of London and this is the chance to reinvent the physical retail experience and see a new era for some exciting opportunities that blend uses and sales channels. Pre-lockdown we saw the opening of Zara’s new concept store, offering automated collection points and self service facilities. Meanwhile in Oxford Street, whilst shops are closed Lush has turned its store into a local distribution centre, offering a bike and on-foot delivery service called Lush Local.
The eventual return of workers to London will also be a boost to food and beverage outlets which have remained largely closed or with limited opening. Overall we anticipate retail will see a recovery in 2021, with a sharp bounce back in retail sales on top of fairly resilient consumer spending in 2020.
It has been said before that London is the mother of reinvention and whilst a winter of gloom has dampened its spirit, 2021 has much to offer as our Capital flexes its resolve and claims its rightful place in the global arena.