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Key investment opportunities across each sector for 2021.
Commercial
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Despite the debate about how and where we work, offices in CBDs will remain the sector of choice for most occupiers and investors. Typical postrecessionary trends will mean these will become increasingly scarce. High quality, well-located buildings that tick both ESG and wellness boxes will out-perform.
Recessions have always left the market with an oversupply of some type of space. The winners in post-recessionary periods are those who buy those assets cheap with an eye on what they could become. This time around, we expect to see traditional retail, office and industrial assets being repurposed for residential, life science, data centre and medical-related uses.
Residential
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Yes, it was on our list of top picks last year and it remains so this year. A short-lived Boris bounce at the beginning of 2020 hinted at a recovery that has been held back by international travel restrictions. With prices still 20% below their 2014 peak, it continues to look good value in both a historical and international context. And while a 2% nonresident buyers stamp duty surcharge is due in March, total buy, hold and sell costs will remain competitive compared with other world cities.
Some 63% of all privately rented homes are houses as opposed to flats, yet houses only account for 12% of build to rent stock. That presents an untapped opportunity for institutional investors to capitalise on the nascent suburban or ‘single family’ model, which is geared towards the fastest growing segment of the rental market – families and those over the age of 40. With less need for communal areas, lower running costs and less tenant turnover, it offers an attractive proposition for those looking for secure long-term income streams.
Rural
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The stellar returns in forestry hint at a market nearing capacity, but a winner-takes-all attitude and the soft power of timber within an investment portfolio means that demand dynamics continue to drive capital appreciation. The long-term play is that valuations reflect growing carbon agendas, repaying investors with super-long term horizons.
The market for prime Grade 1 peat arable areas of the East has struggled in places, as commercial farmers question market returns and limit expansion plans. However, the carbon potential of these peatland soils arguably makes them the target for future policy intervention and market innovation. Regenerative practices and alternative uses could bring outsize value returns for prime soil investors.
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