Opportunities and optimism in the post-pandemic world

Answer

With increasing vacancy rates on the high street; proclamations of the ‘death’ of the office and higher education campus; and growing rent arrears and recovery challenges for landlords so commonly in the news headlines over the past 18+ months, you would be forgiven for having concerns about the stability of the real estate industry and, consequently, the future role of real estate lawyers.

However, if you take a step back, ignore the drama and hype and consider the wider commercial picture, there are plenty of reasons for optimism within real estate. There are numerous opportunities for real estate lawyers to help their clients unlock the potential of their portfolios.

Science parks

Scientific research and development cannot as readily switch to online working as other forms of skilled work. We are seeing several trends in the science park investment space, including:

• growing national and international networks of high-quality lab and office space;
• a focus on locations with established networks of universities, hospitals, support services and skilled talent;
• strong institutional backing and enthusiasm for the sector; and
• a long-term vision among investors and developers, with plans to expand existing facilities and offer supplementary support for new and growing businesses.

For details of recent transactions that powerfully illustrate these trends and the range and ambition of investment in the sector read ‘Science park investment flourishing in challenging times’, an article co-written by Vincenzo Maggio, partner in the Mills & Reeve Cambridge office and Rachel Pitman, partner in the Mills & Reeve Manchester office.

Sustainability

Sustainability has been on the agenda for a while but came to the forefront as a trend in real estate in 2020. Reducing our carbon footprint is proving to be one of the biggest challenges facing the real estate industry today. Boris Johnson has placed climate change targets at the top of the government’s agenda and the government’s target is to reach net-zero carbon emissions by 2050.

Data suggests that, in the UK, the operations of buildings account for 30% of the country’s emissions. The Bank of England’s Mark Carney has warned that companies must raise their game in tackling climate change or risk seeing their corporate assets become obsolete. If our clients are going to retain a competitive edge, investment and planning in this area is very much required. Not just by the big players (who must surely lead) but by all interested parties. For more on this subject read ‘Responsible real estate’, an article written by Charlotte Buckley, senior associate in the Mills & Reeve Cambridge office and ‘Existing buildings – re-use and recycle’, an article written by Catherine Anderson, associate in the Mills & Reeve Birmingham office.

Offices

At a time when many were claiming that covid-19 was signalling the death of the office, Charles Staveley (partner and head of real estate investment in the Mills & Reeve Cambridge office) and Laura Ludlow (principle associate in the Mills & Reeve Cambridge office) explored this conversation further. They looked at how the death of the office ignored the fundamental benefits an office brings and how collaboration between owners and occupiers would be fundamental in re-imagining the office as the workspace of choice for the future. You can read about this in their article ‘Rumours of the death of the office are greatly exaggerated’. I also explored how central business districts could survive the pandemic in ‘How can the CBD survive the pandemic’.

Repurposing

With increased demand for lab space among occupiers including the life sciences and tech sectors it seems logical (where change of use is permitted) to repurpose commercial spaces like offices, retail and warehouse units otherwise sitting vacant. For more on the specific and technical considerations required, including location and logistics considerations, read ‘Repurposing to lab space’, an article written by Amelia Lewis, principal associate in the Mills & Reeve Cambridge Office.

The covid-19 pandemic highlighted the importance of the social care sector and particularly the role that care homes play in supporting the NHS. In ‘Is repurposing and transforming unwanted retail, hospitality and automotive property stock the way to solve the 2030 care home bed crisis’, Victoria Hughes-Barker, senior associate in the Mills & Reeve Leeds office, considers the challenges facing developers and investors that may be looking to seize on demand (and possible return opportunities) in the social care sector.

PropTech

PropTech aims to allow investors, developers, managers and occupiers to:

• maintain a competitive edge;
• be more cost-efficient;
• quickly respond to market changes; and
• offer innovations.

Investment into PropTech, particularly within the past two years, has drastically changed the real estate industry and, most would say, for the better. In ‘How proptech is shaping the Real estate industry’, Agata Dennis, associate in the Mills & Reeve Cambridge office, looks at key areas in which the impact of technology is evident within real estate.

In ‘Tomorrow’s World: PropTech in a post-pandemic world’, Abigail Williams, senior associate in the Mills & Reeve Cambridge office, considers the acceleration of PropTech due to covid and the resulting increase in the adoption of (and investment in) technology.

Higher education

While online teaching will inevitably continue to grow and evolve, according to recent research by Universities UK, almost 60% of students and recent graduates felt the social element of the physical campus helped them to:

• broaden their life experience;
• become more independent and confident; and
• develop skills like teamwork and time management.

Unite Students polled 500 British students and 500 parents for their thoughts on covid, student safety and returning to campus. Of the respondents, 89% of students were keen to return to campus once safe and 79% believed that living away from home, or being on campus, is as key to their university experience as lectures and tutorials. Meanwhile, only 14% said they preferred full, permanent remote learning.

This all suggests that estates teams will still need to invest in learning and living spaces to attract some of the best staff, students, academic and commercial partners. For a more detailed analysis, read ‘Is the physical campus dead?’, an article written by Christian Bull, partner in the Mills & Reeve Birmingham Office.

Build to Rent

The Build to Rent (BTR) sector enjoyed impressive growth before the pandemic. With around one in five households in the UK now renting, BTR has been well positioned to benefit. Despite reduced activity in quarter 2, investor confidence gives cause for optimism. With more BTR schemes now appearing outside London, Savills reported that investment volumes had reached £2.7 billion by October 2020, already matching 2019 levels. A renewed focus on wellbeing could also bolster tenant demand. A key feature of BTR schemes is the incorporation of technological and design solutions to meet the environmental, social and lifestyle aspirations of their tenants. For more detailed analysis on how well BTR is placed to weather the covid storm, read ‘Build to Rent: Resilient despite the pandemic?’, written by Vanessa Warren, principal associate in the Mills & Reeve Birmingham office.

Patient capital

In ‘The long-term vision of the master developer’, Christine de Ferrars Green, partner in the Mills & Reeve Cambridge office, talks about:

• the place for patient capital in stewarding master developer-led residential developments; and
• the need for good stewardship of the completed development for the long-term future.

Mapping the FutuRE

Bringing together the above, plus a multitude of other themes, and drawing on broad experience working with clients across the sector, the Mills & Reeve real estate team has launched Mapping the FutuRE – an interactive map sharing views on evolving trends and giving its vision for the future of the sector.

The innovative map offers insights and predictions on a wide range of topics affecting the real estate industry today and in the future. It can be navigated by asset type, including science parks, student accommodation, offices, and health and care. The map also links to the key themes that are re-shaping real estate:

• Environmental, Social and Governance, with a focus on sustainability;
• construction; and
• the future of planning.

Sarah Cooke is a principal associate in the real estate team at Mills & Reeve. The national real estate team at Mills & Reeve numbers over 140 fee earners, across six offices and includes specialists in investment, development, alternative assets, real estate finance, asset management, planning and environmental, litigation, construction and tax.