Cushman & Wakefield RETHINKING: The Shape Of Real Estate 2040

HEADWINDS OR TAILWINDS?

Housing demand is not expected to ease materially through to 2040, remaining significantly above the historic rate of supply. Easing demand pressures from slowing population growth will be offset by people living longer, rising numbers of single person households and migration. Owner occupied homes are expected to see the lowest level of growth as affordability remains challenging amid the supply-demand imbalance, while PRS is projected to grow its share of tenure significantly. Additionally, tailored housing products are also projected to see strong growth, particularly in the seniors housing and care home sectors as the ageing demographic stokes demand. Along a similar vein, the growing global retiree population and increasing international middle classes will bolster visitor numbers, driving up tourism demand that will support ongoing growth in the hotel sector.

Segments of the retail sector are projected to see a continued contraction in stock but at a reduced rate in comparison to recent years. As ever, there is considerable nuance to this. The retail sector has already gone through a number of headwinds that have driven rightsizing and revaluation. There is, and will continue to be, resilience in those locations and products which are fit for purpose in a new retail environment. These sectors will continue to see strong consumer demand, and this could in some cases lead to growth in the market. It is unlikely to be in the form of widespread development of retail parks or shopping centres, instead being driven by small extensions to existing schemes, refurbishments, or flexible usage spaces.

The vast majority of this loss of space will occur outside of core markets and will be of assets that fail to meet the environmental or workplace requirements of an occupier base and workforce that is no longer willing to accept sub-standard accommodation. Subsequently, office stock will become further stratified with demand concentrating into quality assets in major markets – resulting in an undersupply of fit for purpose stock in those centres. This impacts on values beyond what has already been seen and will encourage further development and refurbishment. The strength of the UK’s academic institutions and innovation industry is expected to provide a fillip to demand in the life sciences sector. Technological developments will help the sector to expand in capability and scale, along with increased requirements from an ageing population. The fundamentals that have driven continued demand for logistics and industrial space will persist in the short-medium term through increased requirements for warehousing and storage space, while in the medium term, growth will likely be powered through advanced manufacturing requirements.

A greater reduction will likely be seen across the office sector.

Changes to the way we work are well documented and will lead to falls in demand for office space across the UK, likely resulting in large-scale repurposing of space that is no longer fit for purpose.

RETHINKING: THE SHAPE OF REAL ESTATE IN THE UK

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CUSHMAN & WAKEFIELD