Despite current economic pressures, 49% of UK property companies are planning to increase their decarbonisation investment in 2023, according to BPF Survey
Results from the BPF survey show that the property sector predicts that 2023 will be a challenging year for the construction industry, with only 10% of respondents positive on the short-term outlook for the UK economy.
Whilst over half of the respondents identify economic uncertainty, inflation, and increase in build costs as the biggest strategic risks for 2023, whilst 41% highlighted the cost of debt, and 21% cited the current planning system as the biggest risk.
Despite an uncertain short-term outlook, long-term construction outlook remains confident
Whilst the short-term outlook for the construction industry remains uncertain, 77% of survey respondents are confident in the performance of UK real estate over the next five-year period.
Over this period, the industry’s skills gap and climate change were identified as key strategic risks behind economic and political uncertainty.
Construction decarbonisation investment remains a priority in 2023 despite economic uncertainty
The BPF survey also revealed that 49% of leaders plan to accelerate decarbonisation investment in 2023, despite 2023 having a challenging outlook. A further 28% expect to maintain their current decarbonisation investment level, while only 2% plan to scale back delivery.
Whilst this proves to be a positive outlook for the industry, access to talent may prove to be an obstacle to meeting net zero targets, with 77% of respondents saying that they are finding it difficult to attract and retain talent.
The Midlands and other key regions are likely to receive property investment in 2023
Whilst London remains the dominant property investment destination for leaders, the Midlands and other key regions are also likely to receive increases in investment.
The study indicates that the construction of HS2 in cities like Birmingham may account for the 28% expected increase in development in the Midlands.
Of those asked, nearly six in ten said that an improved economic outlook would make them more likely to increase development activity in 2023, while 49% highlighted that a reduction in inflation would have the same impact.
Other common catalysts for development activity included increased availability or cost of debt, greater certainty of demand, and a more efficient planning regime.
Emerging real estate asset classes expected to outperform
When asked which asset classes would outperform in 2023, almost half identified life sciences, student accommodation, and Build-to-Rent.
Despite recent volatility in pricing, 28% selected logistics to outperform in 2023, with the sector supported by record low vacancy levels and strong underlying demand.
By contrast, respondents were less confident in the short-term performance of traditional workspace: 10% expected co-working and flexible office space to perform well, 8% said the same for London offices and just 2% were positive about regional offices.
‘A plan for taming inflation is needed after the political turmoil of 2022’
Melanie Leech, chief executive, British Property Federation, commented: “While we are braced for 2023 to be a challenging year, those surveyed clearly believe that there is a positive outlook for the sector next five years, reflecting the cyclical nature of real estate and the property sector’s role as long-term investors in towns and cities.
“The sector is currently facing a perfect storm of pressures including cost inflation, skills shortages, and increased cost of debt but as economic conditions improve we should see activity rebound strongly. Crucially, the industry is set to double down on its carbon commitments which is vital if the UK is to achieve its net zero target.
“Political and economic uncertainty however remain the two most significant risks for survey respondents over the medium term and the Government must not take the ingenuity and commitment of the property sector for granted.
“After the political and economic turmoil of 2022 we need a clear and coherent plan for taming inflation, unlocking private sector capital for regeneration and modernising and resourcing the planning system to allow the public and private sectors to partner together to accelerate the delivery of the housing, workspaces and local infrastructure that will drive growth.”
