Last year was a difficult one for the UK’s real estate sector and those investing in it. Tight borrowing conditions, combined with political and economic uncertainty, created obstacles for transactions – adding further complexity when aligning sellers’ and buyers’ expectations.
It is, therefore, no surprise that total UK real estate investment in 2023 was 30.2% lower than the level recorded in 2022.
The commercial property market, in particular, experienced a notable downturn, with annual investment declines across asset classes, including retail, healthcare, offices and industrials.
Q4 2023 did show an uptick in activity, with data revealing £10.7bn of investment deployed. This was a 15.1% increase on Q3, and also higher than the same period in 2022.
While it would be premature to call a turning point in the market, Shoosmiths’ real estate investment group also experienced a strong finish to 2023 – advising on £200m of transactions during the final quarter, including several landmark deals in the retail sector.
Even in sectors facing significant disruption, our team is supporting investors that are looking past current market challenges and identifying the long-term development and investment potential in assets they are targeting.
Many are progressing major regeneration projects and pioneering novel approaches to new development or redevelopment, while assessing ways to reposition assets, meet changing occupier demands and create flourishing locations.
Repurposing assets
One of the most exciting projects we acted on last year was the acquisition of Gracechurch shopping centre in Sutton Coldfield. Shoosmiths advised SAV Group and BPG on the purchase, with contracts being exchanged earlier in 2023 and the deal completing in November.
The 1m sq ft retail centre was originally constructed in 1974 and has undergone several renovations and expansions since then. It has more than 75 stores, as well as a dining and leisure offering, all sitting at the heart of the town.
While plans are still being formalised, with the West Midlands Combined Authority also recently providing its backing, SAV Group and BPG have an ambitious vision for the site.
Based on creating a “modern living, working and leisure space”, the centre is set to be transformed to incorporate new homes as well as leisure, retail, commercial and other uses.
“The Gracechurch Centre holds enormous potential,” said Emilios Tsavellas, development director at SAV Group. “We look forward to working closely with all stakeholders to craft an extraordinary town centre that will benefit the entire community of Sutton Coldfield.”
Investment decisions will always be rooted in core principles, such as where a property is located, the type and quality of the asset, and its tenant profile. Tsavellas’s comments do, however, reaffirm the importance of an organisation’s imagination for a project.
By looking past immediate hurdles and investing in the potential of the Gracechurch shopping centre, SAV Group and BPG have an opportunity to revitalise a 50-year-old location – creating new jobs, economic growth and benefits for the surrounding community.
Building scale
Real estate investors do not always have to progress major redevelopment programmes to enhance an asset’s potential. Other changes can have an equally powerful impact.
For example, Shoosmiths’ real estate investment group acted on the £305m sale of a nationwide car park portfolio at the start of 2023. The portfolio, comprising 37 car parks and 15,000 spaces located across England, Wales and Scotland, is operated by NCP.
The buyer now intends to work with NCP to identify and capitalise on opportunities to enhance operations, building new electric vehicle infrastructure and introducing technology-enabled services to the portfolio.
This follows an almost decade-long involvement in the portfolio for Shoosmiths, during which time our team worked with clients to enhance legal structures, and therefore investment value, to optimise the ultimate sales process.
The ESG agenda
Environmental, social and governance factors are now core fundamentals within the commercial real estate market, and demonstrating the power of progressing sustainability-led changes is Bywater Properties.
The firm acquired 30-34 Old Paradise Street in Lambeth in 2018 and is now creating a six-storey office building, named Paradise.
On completion, the project will set a benchmark for low-carbon development, improving on the Greater London Authority’s 2030 embodied carbon target at 413kgCO2e/m2 and the RIBA’s whole-life target at 491kgCO2e/m2.
The development is being built using a mass timber structure, locking within the frame the equivalent of 60 years of tenant emissions and lowering the embodied carbon of the construction phase compared with a conventional steel or concrete building.
The building also incorporates solar panels on its roof, an openable facade and 99 bicycle parking spaces to promote sustainable travel.
Bywater is raising the bar for what can be achieved through sustainable development with the Paradise project, while simultaneously improving the building’s appeal to occupiers.
“We took an early decision to pursue a timber frame approach, despite some challenges, because it seemed clearly the right thing to do,” said Theo Michell, co-founder and chief operating officer at Bywater Properties. “The carbon performance on this project, we feel, bears that out and sets this project among the leading low-carbon exemplars in the UK.
“While the majority of our work is focused on reuse of existing structures and extension in timber, we believe there is still a place for delivering new-build, so long as there is a rigorous approach to minimising carbon. We feel that timber has to play a key part in that story and, as an industry, we need to find the opportunities and courage to pursue innovative approaches to meet the challenge of climate change.”
Force for good
Whether repurposing a 1m sq ft shopping centre into a new mixed-use destination or setting new sustainability standards with an innovative timber-frame building design, these projects help to demonstrate the different ways that real estate investors are realising the potential of assets and, in the process, delivering much-needed social and environmental benefits.
They reinforce the fact that real estate can be a force for good, as well as being commercially successful.
Securing a return on investment does not have to come at the expense of helping places prosper or enabling towns and cities to overcome difficulties – in fact, delivering those benefits can deliver a very real enhancement to asset value and saleability.
New challenges will no doubt arise throughout 2024, and ensuring viability must always be the priority in any investment transaction. Nevertheless, there are still deals to be pursued, and by unlocking the potential in assets, real estate investors can realise returns while contributing to the transformation of the UK’s built environment.
Nathan Rees is a partner and real estate investment group co-head at Shoosmiths
Photo © Nicolas Hoizey/Unsplash
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