Institutions to hunt suburban resi in 2021

Goldman Sachs’ £150m acquisition of 900 North West homes in January is a signifier of healthy investor sentiment for the year ahead, according to JLL’s latest Regional Property Predictions report.

The resilience of the region’s residential market is demonstrated by continued interest among overseas investors, with hybrid living between home-working and smaller, smarter offices set to be a particular trend this year, the consultancy’s report said.

Meanwhile, 2021 is likely to see increased demand for prime office assets, especially from overseas investors, leading to yield compression. In the industrial sector, the firm expects lack of supply to continue to drive up pricing further and may lead to reduced trading volumes in 2021.

JLL also highlighted continued demand for index-linked long income assets in the North West as investors look to match their own liabilities in the current low-interest environment.

Demand for such assets will “assist in ensuring that otherwise unviable development schemes are able to be completed”, according to the report.

With around 1m sq ft of active Manchester office requirements of 10,000 sq ft-plus, JLL expects office rentals to reach £40 per sq ft in the second half of the year, once pent-up demand starts to be realised when lockdown measures are eased.

Stephen Hogg, regional head of JLL, said: “The continued trend in occupiers taking slightly less, but higher quality space, is expected to continue.

“At the smaller end, occupiers are likely to increasingly want some level of fit-out, demanding a hybrid of serviced offices and a more traditional letting. In Manchester, we expect flex space to be popular as occupiers lean on this while decisions are made.”

According to JLL, Manchester continues to be the only city outside London that attracts residential investment from overseas buyers – a trend it expects to continue.

Hogg said that both office and home designs are changing in a Covid-impacted world

Hogg added: “One of the drivers of the build-to-rent success in Manchester is the young demographic of the city, with 45% of the population being under the age of 35.

“The large-scale funds are now turning their attention to the suburban market and we expect this to become a trend during 2021 with suburban renting in Greater Manchester witnessing substantial growth.

“Going forward we need to get used to the language of a ‘hybrid future’, getting the balance right of homeworking versus time in the office.

“This will alter the way the office market works, fewer desks, more collaboration space, possibly with requirements marginally smaller. In turn, this will affect the residential market as we evaluate how our homes are designed and used.”

The regional director told Place North West: “Early strides were made in this field by Sigma Capital, and the sale of a 900-home portfolio to Goldman Sachs shows the level of interest.” Goldmans paid £150m for Gatehouse Bank’s North West portfolio in January.

Hogg continued: “We’re talking to all the major funders about this now. Something like 70% of the UK’s rented stock is in housing, not the city centre apartments that have previously got the attention. It’s a natural progression towards a more European model.”

Institutions are interested both in existing portfolios, rare as they are, and in taking chunks of current or future housing projects as they look to establish long-term rental incomes, according to Hogg.

Meanwhile, home-working is already being designed into projects. “The first wave was reactive, changing existing footprints to create offices, but it’s now become a full part of the process, factoring in power supply and wifi points. These things are here to stay.”