Barney Hillsdon is Principal and Senior Director, Land and Development, Avison Young, here he speaks about how the COVID-19 lockdown has changed the landscape of the construction industry
In March, the UK construction industry and property market effectively came to a standstill. The COVID-19 lockdown meant that contractors were sent home, sales offices were emptied, and large numbers of employees responsible for valuations, surveying and administration were furloughed.
Now, however, the industry is slowly restarting. As the government encourages construction workers to return to site and sets out plans to further ease the lockdown, we consider how land and development can regain momentum.
Setting expectations
While spring and early summer would have been a natural time for many landowners to release their development opportunities to the market, the current context means that this is no longer the case. Instead, we are using this time to have conversations with our clients about how to structure deals and present opportunities to the market, and when might be the best time to do so. Public sector organisations in particular are keen to understand when they may be able to dispose of surplus assets; for many, this is an important way of raising funding for delivering services.
But what about the other side? As we speak to housebuilders and developers, we are getting a sense of when they expect to be able to carry out the required due diligence to make proposals to landowners. The picture that is emerging is a more cautious and selective land-buying approach, with developers more likely to make conditional proposals and to seek to defer payment terms. It is important that landowners and vendors understand this, and can set their expectations accordingly.
New opportunities
There are silver linings, however. For those looking to buy, we expect to see a steady flow of development opportunities coming to the market as vendors hope to realise returns from their sites. Over the coming months, it’s likely that we will also see an increased number of distressed assets for sale. As lenders and funding markets are cautious, buyers who are sitting on cash reserves are in a good position to negotiate.
Of course, buyers need to be prudent and realistic. Social distancing measures are likely to slow the progress of builds, and developers will need to account for added uncertainty about future property values. Careful planning and forecasting will be key.
Retail redevelopments
While the whole of the property industry is being affected by the pandemic, the retail market is experiencing particularly dramatic impacts. Retail was already struggling, and many brick-and-mortar retailers are now unable to operate under the current social distancing measures. Over the next few months, we expect to see a significant increase in retail assets being sold off for residential redevelopment. Retail parks are often particularly appealing to residential developers, as they tend to be in good locations with strong transport links. Planning policy is becoming more flexible to change of use, meaning that residential developers may be more inclined to make speculative purchases when they see a good deal. Town centre and high street premises – which have been less popular in the past due to lease restrictions and planning policy – may also offer interesting opportunities for speculative buyers.
A more streamlined market
One positive outcome of a nation on lockdown is that organisations have been forced to adapt quickly to new ways of working, and digitalisation has been accelerated. As the property industry restarts, technology will help to streamline the industry. Checking site progress, contacting surveyors, and meeting with planning committees and local authorities could be quicker, easier, cheaper and just as effective if moved online. Some tasks — showhome viewings, final inspections, safety surveys — will still need to be done in person, but others can be dramatically reduced.
At Avison Young, we’ve found that flexibility has helped us to get the most from our teams. On-site staff have been staying safe but working tirelessly, and office staff have adapted incredibly well to working from home. Technology has allowed many of our people to continue their duties without coming into a shared workplace, so we’ve made returning to the office voluntary for the remainder of the year. In order to move forward and rebuild the future of the industry, we need to be promoting safe, healthy work environments — wherever they may be.
Moving forward
As lockdown begins to ease, opportunities are emerging across the property industry. Although movement may be slow and cautious, we will see transactions progressing again. Landowners and agencies are keen to get things moving, and developers could see some very interesting sites coming onto the market. Shifts are also underway that will reshape the industry forever. Open discussions, flexible plans and robust risk management strategies will be the key to success for the foreseeable future.
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