Property picks up as interest rates fall
After all, following 2023, the real estate industry is showing signs of picking up as interest rates fall. Residential Property, in part due to the chronic shortage of new houses being built, is already seeing prices rise. With commercial property, there is a deeper question about what kind of work space businesses want, in this new pandemic period. Insofar that nationwide, occupancy is still below pre-pandemic levels, some areas are doing better than others. For example, in London, Mayfair has over 90% occupancy whilst Canary Wharf is stuck at 70% and just as importantly, is struggling to retain key clients. Manchester is not far off that, with only 12.4% of the commercial space being vacant. Indeed as an indicator for recruiters, of which parts of the market are busiest, occupancy in commercial property is worth keeping an eye on. For London, Canary Wharf is a big question. When Canary Wharf first appeared, it was given extensive tax breaks to attract businesses. Now though, with businesses being less interested in being located there, what can be done?
Alot will depend on what happens with the current culture war playing out, regarding remote working as opposed to being based from the office. More and more, companies are requiring people to be on-site which for people who have become accustomed to being able to be remote, is being resisted. However, the productivity gap between the UK and the rest of the G8 is widening, and we are still the only country to not see productivity return to pre-pandemic standards. For businesses insisting on people returning to the office, whilst there is a stick element, there is also a carrot, meaning that where we are seeing salaries now increase the fastest is in roles where hybrid and remote working is not an option. For bigger businesses looking to induct the next generation and train them up, where they have access to line managers, mentors along with having access to peers along with the overall culture, the challenge is doing this whilst people are working remotely is just really quite tough when operating at scale.
In contrast, for smaller businesses, which have more interwoven workflows, its easier to offer remote working, also the ratios of junior to senior staff tend to be more even. (Imagine the Big 4 alone will hire 5k+ graduates each year between them.) Hence what we expect to see happen is a divergence, where small businesses offer remote / hybrid working, equally don’t pay as well as the larger companies, which leads to a natural career choice. But for people who want to be at the top of their salary bracket, a return to the office seems inevitable. Nonetheless, the smaller companies phasing out office based work does seem to be casting a long shadow on commercial property. Now there are talks of commercial property being pivoted to residential use. But would anyone want to live in an office block? All in all, this promises to be a tumultuous time for the real estate industry. Green shoots are there, but there is a long way to go.
The data referenced above has been sourced from Vacancy Analytics, a cutting-edge Business Intelligence tool that tracks recruitment industry trends and identifies emerging hotspots. With 17 years of experience, we have a deep understanding of market activities in the UK and globally.
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