As one of the most popular markets in the world, property investment in the UK remains a clear opportunity to build long-term results. And right now, the UK property market is presenting a wealth of opportunities for developers and investors.
The pandemic has spurred major changes to the property market. In particular, these are the opportunities and challenges that are shaping the property market right now: financial implications on occupiers, permanent adjustments to consumer behaviour, and legislation changes making it easier to make money from property.
In this blog, we’ll look at what’s driving change, which properties are ripe for investment, which aren’t, and the top property investment strategies for 2023.
The 3 key drivers of change in today’s property market
But first, let’s look at how the property industry has changed substantially over the last two years…
Financial implications of Covid-19 on occupiers
Rent arrears can be a complex topic and first and foremost, doing everything you can to support tenants is key. However, if all else fails, and it’s having an impact on your cash flow, there are new changes to be aware of:
- Commercial rent coronavirus bill - The 25th March 2022 sees the end of protection from Covid related rent arrears. From this date, the new laws apply. In the first instance, if tenants are unable to pay in full, they should negotiate with their landlord in the expectation that the landlord waives some or all rent arrears where they are able to do so. If rent arrear disputes aren’t resolved through arbitration, there could be an opportunity to make money through redeveloping the property and taking on new tenants.
- Residential rent arrears – If a tenant is in rent arrears, the owner can get possession back. Therefore if you can make more money out of the property from say development, then you, as the landlord/owner, can get it back from the tenant. It's worth noting that since 1 June 2021, most possession notices have required the landlord to give a minimum of four months’ notice, however there are now some shorter notice periods available if the landlord serves a section 8 notice - for example, if the tenant is in rent arrears, the owner can get possession back.
- Debt laden businesses – Again, if there is something better to do with the property (redevelop/change of use) then this may make it easier to get back possession through negotiation. Also, if owned by an investor and the rent is in doubt (because the tenant is struggling to meet their liabilities) then they may be a much more willing seller, which is good news for a developer.
- VAT relief coming to an end in March 2022 – Like the above, the VAT relief could have been “propping” up the occupiers financially so this coming to an end may put a greater burden on an already struggling occupier. On 31st March 2022, many businesses will no longer benefit from the VAT relief which they were not passing on to customers and using to improve their margins. New NI increases will also add pressure to struggling businesses.
Permanent changes in consumer habits
New consumer behaviours span all areas of life, from how we work to how we shop to how we entertain ourselves. But how do these impact on property investment?
- Change in demand for where we work (office buildings) – The need for office space may well reduce significantly – but maybe we meet elsewhere rather than in an office? This could present an opportunity for redevelopment of office space – potentially converting it to residential use.
- Change in demand for where we work (permanent WFH) – Moreover, people who have switched to a more permanent work from home culture may want more space at home, such as in a separate office in their household. Therefore, the demand for larger housing may materialise and without the need to commute, people can live further afield from commuter lines and so more rural/isolated locations could become more popular for residential properties. Conversely, landlords may be able to get a good deal on inner city flats this year by taking advantage of market conditions driving people further afield.
- The way we buy – With a major shift towards online retail, consumers are pushing up the demand for storage space rather than retail space. Online retailers need storage/logistics space, not shops, and this is changing how they choose building types and locations - for example, considering motorway junctions rather than high streets. People have gotten much more used to using online tools and technology to find what they want – which includes property purchases.
Legislation changes
You might have heard about some of the legislative changes that were made recently. These changes mean you can do more with your properties, here are two of the key changes:
- New Permitted Development (PD) rights – It is so much easier to get planning permission to redevelop properties (and make money) than before - such as converting commercial property into residential. Essentially, you don’t need a planning officer’s permission to make money.
- Build, build, build mandate – The Prime Minister’s attitude towards development is very positive. So if you need permission, it is much easier than it was historically.
What’s hot: Where to invest in property in 2023
With so many changes and new opportunities, it can be difficult to know where to start. So here are three top ideas to consider:
- Conversion potential – Where the existing use of the building is waning but there is a much better value to be created from it where there is demand. For example, converting buildings to residential, industrial and for electric vehicles.
- Undervalued residential locations – Areas that are likely to increase in value due to gentrification.
- Housing Delivery Test failings – Where councils have not hit the new housing development plans that they’d outlined for the year to support sustainable development.
Top tip: Using a colour-coded Housing Delivery Test overlay in property tools like this one, you can see at a glance the local planning authorities in England that have delivered less than 75% of their housing requirement. These LPAs now have less influence on planning decisions as there is a presumption in favour of sustainable development in place making development easier than ever.
What’s not: Where to avoid directing your property investment in 2023
Given the changes to the property landscape (outlined above), certain property assets are losing value and so are less appealing investments.
- Buildings suffering due to reduced commuter footfall – Such as shops, offices, cafes/restaurants that are reliant on office commuters. Despite the slight relaxation on permitted developments, some buildings can’t be converted to an alternative use.
- Weak, low value residential areas – Where the exit is not enough to justify any change of use.
- Weak retail sites in weak residential areas – Due to likelihood of reduced non-discretionary spend.
Top tip: Using a commercial availability overlay in property tools like this one, you can highlight properties available and show if there is a large amount of one type in any given area, for example, high street shops. This helps you to assess whether the site is in the optimum location for your new property development plans.
Top 3 property investment strategies for 2023
There are three main areas where you can invest to make money – property with Permitted Development rights, industrial, and low value commercial property in residential areas. Here’s why…
Strategy #1: Leverage Permitted Development rights
With a specific checklist, it’s easy to identify whether the Permitted Development rights apply. This is a great strategy for providing an easy route through planning with a presumption in favour of giving the consent in some cases, with quicker decision times, for example for Class G (where you need a council’s permission to convert the usage).
With the arrival of Class E, which is the amalgamation of lots of commercial use classes, these Permitted Development rights now apply to a much larger number of properties than they would previously.
Top tip: Using tools like these, you can use overlays to see in seconds if a property is viable from a financial and a planning point of view. Alternatively, you need to familiarise yourself with the details of the permitted development limitations as well as the realistic costs of acquisition, development and sale.
Strategy #2: Go industrial
Typically, we find that a bigger unit will have a lower rental value per square foot than if you buy large units and split them up. With the surge in prices for industrial units, the opportunity to split units could generate a strong return on the initial investment of separating them.
Top tip: If you can find low density industrial units where you can extend them at the same time, then even higher returns can be made.
Strategy #3: Source low value commercial buildings (in residential areas)
This strategy focuses on finding low value commercial buildings in residential areas where the residential value is much higher than the value of the commercial building. These are perfect opportunities to buy lower and sell higher.
Generally, the type of commercial building ideal for this would be one creating a nuisance to the residents nearby and that would be better suited to an area with buildings of similar use around it, such as an industrial park. For example, an MOT bay in a residential area parking cars on the residential street can be noisy due to the use of machinery.
Often, planners will support this move as it benefits local residents.
Top tip: Ensure you’ve checked headline policies that might preclude residential use. Higher value residential areas offer higher sales prices, meaning planning gain on the property itself can be higher (the difference between what a building is worth and its value as a residential development site). And don’t be afraid to share the planning gain for deals subject to planning or option agreements, as these will derisk your position and therefore support gaining permitted development.
Final takeaway
This year marks a big change in the property development landscape. Having felt the pressures of restrictions being imposed on investors and developers in recent years, it's a much welcomed change to see a window of opportunity to make money.
But with so many investors looking to gain from these changes, you must act quickly to secure the properties that are primed for Permitted Development or benefit from the change in consumer behaviour, like with the industrial unit investment strategy.
Savvy entrepreneurs are leveraging online property tools to source these opportunities and quickly qualify them. Loved by 1000’s of property entrepreneurs, Nimbus Maps enables property investors and professionals to find the best off-market opportunities and make decisions quickly and with confidence.
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