Outlook
for 2023
Despite the uncertain economic climate, 2023 will bring significant opportunities. Our experts across Carter Jonas discuss a selection of key areas to watch over the next 12 months.
Opportunities from biodiversity
Biodiversity Net Gain becomes statute in 2023, generating opportunities for landowners, developers and corporates.
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Developers are bringing forward more stock but there is a time lag until it hits the market.
Planets align for the life sciences
Funds and builders will diversify into the build to rent market.
BTR to attract strong investment
Legislation requiring energy performance of an E-rating or better by 1 April will have major implications.
MEES and its implications for commercial landlords
The domestic critical minerals sector is building momentum, with security of supply crucial for the UK’s net zero commitment.
Positive year for critical minerals
The need for specialised older people’s accommodation has been overlooked historically, which makes it an attractive sector for developers and funders.
Retirement living, a speculative opportunity
As ever more farmland is switched from food production to renewable energy, this sector is one to watch out for.
Vertical farms are on the up
Potential changes have been discussed in the planning policy arena, but with the slow progress of the Levelling Up and Regeneration Bill, more needs to be done.
All change in planning policy?
An inverse relationship between the sales and lettings markets means continued strong demand and activity in 2023.
Residential lettings remain strong
Strong demand from environmental buyers for estates with multiple income streams and strategic development will continue into 2023.
Resilience in agricultural land
Although rental growth has slowed, the market will remain tight in 2023, creating opportunities for developers.
Industrial resilience
New waste management initiatives will help move the country towards a more sustainable future.
Going to waste
Despite the current economic constraints, the government has committed to delivering key infrastructure schemes.
Building on infrastructure investment
In the context of the political and economic upheaval that occurred during 2022, it is increasingly difficult to predict the future of planning policy.
Levelling up and Investment Zones
Quote taken from: All change in planning policy?
There is a growing need for more affordable housing and initiatives to help first time buyers.
The UK will need to reduce plastic use and increase domestic capacity to reprocess waste.
Quote taken from: Going to waste
Creating opportunity from uncertainty
Strong tenant demand and favourable planning policy will mean more schemes coming forward.
Planning boost for BTR
London’s office demand is focussed on sustainable grade A space, but the development pipeline will not deliver quickly enough.
Sustainability and the London office development cycle
Disruption to fossil fuel markets is prompting immense capital injections into renewable energy.
The energy market heats up
Economic outlook
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01223 346628
Partner
Mark Russell
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The emerging Natural Capital sector offers landowners the opportunity to provide land for nature-based solutions. Environmental schemes such as Biodiversity Net Gain, the new Environmental Land Management schemes (ELMs), Countryside Stewardship, Woodland Creation and carbon credit sales generate numerous environmental and social benefits. They also offer alternative income streams for landowners, who can either apply for subsidies directly or enter into management agreements. The Environment Act 2021 provided new statutory duties for environmental improvement, including the introduction of statutory Biodiversity Net Gain (BNG) which comes into force from November 2023. Many local planning authorities are already applying a requirement for BNG where they have the appropriate policies in place. BNG mandates that developments must be accompanied with at least a 10% enhancement biodiversity as calculated via the DEFRA metric. Landowners can enhance or create habitats and sell the enhancement as credits to those who cannot deliver on-site. As the Act denotes that habitats must be secured and maintained for at least 30 years, this has the potential to offer valuable, long-term and guaranteed income.
Environmental schemes such as Biodiversity Net Gain offer alternative income streams for landowners.
Partner, Rural
For landowners
Developers continue to pledge a commitment to the environment and towards climate action. BNG provides a measurable framework to deliver beyond the required level. 10% enhancement is the stipulated minimum, but some developers may choose to go above this, and some local planning authorities are also requiring a higher level of enhancement through their local plan policies. As November 2023 (the date that the requirement becomes mandatory) draws nearer, developers will be refining their BNG strategy to be the most cost efficient and streamlined whilst working within the new legislation. The requirement is not necessarily a financial loss, as well-managed green spaces, for instance, could add value to developments when BNG is delivered on-site. In other circumstances, such as where land is at a premium or needs developing at a higher density, offsite contributions may be more attractive. It is important, however, that developers understand the commercial implications of different delivery options and management options and get quality advice early in the process. Integrating BNG to initial plans and reviewing the potential impact of BNG on existing schemes or option agreements ensures that projects do not get delayed or become more costly further down the line.
For developers
As November 2023 draws nearer, developers will be refining their BNG strategy.
There is a growing ESG focus within the corporate world. Increasingly, businesses are assessing their impact on the natural environment, whether directly or indirectly. Capital is being diverted away from companies that do not mitigate against environmental risk toward those that can demonstrate nature-positive practices. As such, corporates are increasingly coming to the Natural Capital marketplace in search of solutions that provide them with biodiversity, carbon and societal benefits.
For corporates
Corporates are increasingly coming to the Natural Capital marketplace in search of solutions.
The BNG credit market is still very much in its infancy, but as we move closer to the November 2023 date, the market will become more transparent, and the growth of the sector will rocket.
01865 255102
Consultant, Rural
David Alborough
01223 346639
Associate, Planning & Development
Rob Preston
0207 016 0735
Associate Partner, Planning & Development
Kieron Gregson
The last two years have seen the planets align for the life science sector with record levels of investment both in terms of funding for companies and from developers looking to acquire life science assets/development opportunities. This is set against high occupier demand and a UK-wide shortage in the supply of available R&D/lab space. The life science sector, whilst not completely immune from the current headwinds, is expected to show resilience in the face of wider economic pressures.
Developers are bringing forward more stock of lab-ready buildings, in response to the ongoing shortage of supply.
020 7062 3077
Head of Science and Technology
Matt Lee
Funding in 2021 exceeded the total invested over the previous decade and remained strong in 2022. This level of investment along with a continued government focus on support for science and technology innovation means that the sector is expected to continue to grow further in 2023. Developers are bringing forward more stock of lab-ready buildings, in response to the ongoing shortage of supply, with good demand in key regions, but there is a time lag until it will hit the market. This will continue to be the theme into 2023 with only a small number of buildings in the development pipeline set to complete next year. New developments in the core life science markets of Oxford, Cambridge and London are expected to underpin the sector in 2023 with pre-let activity increasing for the supply set to follow in 2024. There is also a growing number of regional cities with life science schemes such as Birmingham, Manchester, Liverpool and Newcastle, and these are expected to continue to strengthen through 2023. The regional markets will look on with interest when the first new life science developments are completed, providing the opportunity to build evidence for new rental levels and the resilience of market demand. A lack of available stock, ever-increasing construction costs and robust demand are likely to continue to put upwards pressure on rental levels.
There are a growing number of regional cities with life science schemes.
With costs increasing in all areas, companies are expected to be more cautious about how they approach expansion. That said, with the NHS under sustained pressure from the aftereffects of the pandemic, the opportunities to collaborate on life science innovation/research projects and the drive to adopt new technologies will continue to grow. This will in turn fuel demand.
With the sales market expected to see transaction levels decline, the rental market will undoubtedly see an increase in demand. Funds, investors and builders will look to diversify their assets and tenure mix and lean towards the build to rent market where demand will remain high. The basic fundamentals that underpin the strength of the build to rent and private rental market continue apace, and we expect these to stay this way for some time: tenant demand is strong and there is still a chronic lack of available stock almost everywhere. These fundamentals, together with the slowdown that we are likely to see in the residential sales market in the year ahead, are boosting the drive for more build to rent schemes across the country.
Funds, investors, and developers are all now seeing the benefit of this tenure type and housebuilder conversations we are having are now also becoming much easier as opportunities for capital to be deployed have risen even over the course of just this year. Next year we anticipate an increase in joint venture projects between funds and builders (who may not have previously considered this sector), as they look to create synergies in how they can move into the build to rent sector together, in a highly managed, organised way. We expect that as the cost-of-living crisis continues to eat away at household disposable incomes, this will impact on the type of delivery of build to rent schemes during 2023. For example, we expect that developers may look to claw back on including too many additional amenities in their build in order to keep costs down and make their scheme and rents more attractive and more competitive. We expect that developers will sharpen their focus on what is most important to tenants: location, size, proximity to services, transportation, and schools.
We anticipate an increase in joint venture projects between funds and builders.
07776 470858
Head of Build to Rent
Lee Richards
In support of the UK Government’s commitment to achieve net-zero by 2050, the Energy Efficiency Regulations of 2015 set Minimum Energy Efficiency Standards (MEES) for commercial property. MEES aims to drive improvement in energy efficiency across building stock, thereby helping to mitigate energy use, cost and associated carbon emissions. Current legislation prevents the granting of new leases on commercial buildings with an EPC rating lower than E. However, by 1 April 2023, landlords of F and G rated buildings will have to carry out works to improve their energy performance to an E or better. Failure to do so will mean the landlord will have to cease letting the property, unless they are able to register a valid exemption. The reality that most F and G rated buildings will be unlettable from April will accelerate the move towards green premiums/brown discounts that we are increasingly seeing across global property markets. This is particularly true for non-premium space where the payback on improvements may be over a significantly longer period. Changing work patterns and occupier demand post-COVID are adding further complexity to this landscape.
There will be tough questions for owners of sub-premium space, who are now faced with a stark choice to either upgrade or divest. From a lender’s perspective, the major consideration will be understanding the risks associated with providing capital to be invested in sub-premium space. Those with a longer-term eye will recognise that while there is risk, there is also opportunity here. Driving beyond minimum mandatory requirements will help to preserve value, increase demand, and boost the ESG performance of assets. MEES also has major implications from an occupier perspective, as many small businesses renting poorer quality office and industrial space could lose their premises. In an increasingly challenging business environment, the potential disruption and increased costs of moving to alternative accommodation will be highly unwelcome. Mutually beneficial collaboration between landlord and occupier will be key in addressing these challenges.
There will be tough questions for owners of sub-premium space, who are now faced with a stark choice to either upgrade or divest.
020 3325 0102
Head of Sustainability
Tom Roundell-Green
Many small businesses renting poorer quality office and industrial space could lose their premises.
Whilst there is significant speculation that the Government might relax the rules before 1 April, there is no certainty that this will happen, and this would likely be a relaxation of the timescale rather than a change in policy direction. Indeed, the Government currently proposes a further tightening of MEES for commercial properties to a minimum of C by 1 April 2027, and B by 2030. Ultimately, the changes to MEES regulations will further accentuate the difference between premium and sub-premium space and increase the risk of a class of stranded real estate. However, investing beyond compliance could significantly boose the value of assets over the longer-term.
As the world makes a transition to a low-carbon future, the requirement for critical minerals is accelerating. Lithium, cobalt, graphite and rare earth elements, for instance, are essential for clean energy technologies such as solar panels, wind turbines and batteries for electric cars and energy storage. The supply of these minerals is vulnerable, largely because the mining and processing of them takes place in a small number of countries thousands of miles away, some of which are facing major political instability. 2022 has taught us that we cannot be reliant on international commodity supplies and that, where possible, a domestic supply chain is crucial.
The UK government published its first Critical Minerals Strategy in 2022. Encouragingly, the report stated a commitment to accelerating growth of the UK’s domestic capabilities and extending support to several strategic projects. The government has also formed the Critical Minerals Intelligence Centre in conjunction with the British Geological Survey to help boost resilience and growth through analysis of supply and demand. The government’s report highlighted that there are clusters of critical mineral capital across the UK, with particularly promising projects in Cornwall (lithium, tin and tungsten). It states that they will begin a national-scale assessment and, in Q1 2023, identify areas with potential. There may be challenges over gaining access to reserves and securing planning permission, but the sector is building momentum and we expect positive moves to be made in 2023.
There are clusters of critical mineral capital across the UK, with some particularly promising projects.
0121 389 9648
Head of Mineral and Waste Management
David Sandbrook
The need for specialised older people’s accommodation has historically been overlooked at the strategic plan making stage. Whilst this has contributed to the current national shortfall in provision it has also led to speculative opportunities, making it an attractive sector for developers and funders. The retirement living sector has long had woefully inadequate investment across both the private and public sectors, and in terms of government policy. It is clear there is no strong or central policy, particularly in the National Planning Policy Framework, albeit relatively recent government planning guidance (not policy) acknowledges that the need to provide housing for older people is ‘critical’ – an unusually strong and emotive word in the context of the wider corpus of central planning guidance. Indeed, it is a sector where there is a great need – the UK population is growing, and the proportion of those over the age of 65 has risen from less than 16% in 2011 to 20% by 2021, equating to an additional 1,840,000 people over this age, totalling 11.1 million people. Given the ageing population and the health system that is splitting at the seams, it makes sense that there should be an abundance of opportunity in age-appropriate care and housing.
We expect that investors, funders and developers will continue to diversify into the sector as they see it as a stable asset.
01223 326544
Partner, Planning & Development
Matt Hare
Looking ahead to the next 6-12 months (and even beyond), we expect that development in this sector will be very resilient. With the ageing population there will be no let-up in demand, and as such we expect that investors, funders and developers will continue to diversify into the sector as they see it as a stable asset. In terms of supply, age-appropriate retirement housing is often able to locate in areas where traditional housing developments would be unable to achieve planning permission. In local authority areas where the is no meaningful planning strategy for the delivery of specialist older people’s housing the provision of such units can weigh compellingly in support of the granting of planning permission, meaning that land that might otherwise be off limits for general housing could be acceptable for specialist accommodation. What’s more, retirement living developments are often subject to less onerous planning policy requirements and sometimes do not trigger policy requirements for the delivery of affordable housing. For these reasons it is seen as an attractive, more resilient, and less restrictive sector.
As ever more farmland is switched from food production to renewable energy production, and with demand for fresh produce higher than ever and rising, Vertical Farming is becoming a sector to watch out for. Vertical Farming (VF) is essentially what it says on the tin, namely growing fresh food in a warehouse on multiple levels but in a tightly controlled environment, where the temperature, lighting and humidity are all set to the optimum level. The crops produced vary depending on demand but are typically herbs and small greens, which require relatively little energy. VF can yield consistent levels of crop throughout the year, and does not compete with UK farmers as the food produced would generally otherwise be imported, thus reducing supply chains and carbon emissions. Add to this the fact they can be built in locations to suit the supermarkets, and you have an asset with many investable attributes.
The future of vertical farms is using renewable energy, with water for irrigation taken from a natural source.
Achieving planning consent on unallocated / greenfield sites could crystallise significant uplifts in land value.
01223 326815
Head of Eastern Commercial
Will Rooke
Although most vertical farms opened to date are connected to the grid, the future of VF is using renewable energy, with water for irrigation taken from a natural source. By becoming wholly self-sufficient they will be a truly carbon neutral asset. VF is presently very much an alternative investment as it is expensive to set up, and so the payback period is several years. However, new entrants are scaling up the model by working with retained contractors and suppliers to homogenise the buildings and reduce cost to the point where payback is nearer 3-4 years, similar to a self-storage facility. Once the return on capital becomes attractive, the sector will move into the institutional market and this will make it easier for vertical farms to attract funding from multiple sources. This will encourage further operators with their own operating models, which should lead to a wider range of food being produced.
With a growing focus on ESG, and with fund managers seeking to invest sustainably, vertical farms are not only attractive for their green credentials; they also improve domestic food security, which as we have seen from the war in Ukraine is equally as vulnerable to global shocks as energy. The final attraction of vertical farms from an investment perspective is that they fall under a sui generis use class, thereby straddling both agricultural and commercial uses. As a food production facility, planning consent could potentially be sought which would not otherwise be successful. Achieving planning consent for vertical farms on unallocated / greenfield sites could crystallise significant uplifts in land value, although we anticipate that as the asset class matures, some sort of tax or levy will eventually be introduced to divert part of this back into the food production economy. Although we are unlikely to see a surge in VF openings in 2023, as it remains a niche sector operating on the fringe of the fresh food industry, this could be the year where vertical farms start to move from the fringe to the mainstream. It is definitely a sector to watch.
All Change in Planning Policy?
2022 has certainly been a year of political change. In the planning policy arena, potential changes have been debated and discussed, but with the progress of the Levelling Up and Regeneration Bill proving sluggish, they still seem some way off.
There is a growing need for more affordable housing and initiatives to help first time buyers, but the First Homes policy has been largely ignored due to unaffordability.
01223 326826
Head of Planning & Development
Colin Brown
Issues on which change is urgently required include nutrient neutrality and electrical capacity, which have created moratoriums in many local planning authorities (LPAs), and Green Belt reform. The issue that repeatedly stymies any real change in Green Belt policy is public perception: the belief that it exists to protect the most valuable countryside. Green Belt designation is not a value judgement on the land in question; it is now an outdated policy, applied with a broad brush, which often restricts sustainable growth and thus increases house prices in some of the most housing stressed areas of country. Reform is needed, not necessarily to eradicate Green Belt policy, but to change the public discourse around the matter and remove local and national political influence. Carter Jonas has, through appeal, succeeded in gaining planning consent on Green Belt land on the outskirts of Cambridge. The scheme, which was for a care village, also included a country park, providing public access and contributing substantial environmental enhancements. But such examples are rare and without any shift in opinion, we are unlikely to see meaningful change to national policy.
Change needed in existing policy
There are policies within which change is imminent but could impede development. This includes the Environment Act, specifically the requirement to provide a 10% biodiversity net gain (BNG) and the ‘beauty agenda’. BNG will enhance the ‘sustainable’ qualities of development and bring about biodiversity enhancements. But with the requirement taking place within a year, there is concern that some local policies, guidance and mechanisms for off-setting are substantially behind schedule. Without these structures, development may be stalled. Furthermore, the requirement to provide BNG may mean that more land is required to deliver new development, requiring Local Plan allocations. And with strategic planning at a standstill in many LPAs (due to issues including nutrient neutrality, resourcing and political uncertainty) many Local Plans are substantially delayed, resulting in a stalemate which this requirement may exacerbate. ‘Building beautiful’ is another well-intended change which has the potential to cause delay. Contentious from its outset, the subjectivity of ‘beauty’ has proven difficult. Despite its likely inclusion in the next NPPF, legal advice is to avoid ‘beauty’ in written documentation because Planning Inspectors do not agree with the concept.
Emerging policy in need of change
The Environment Act and the requirement to provide a 10% biodiversity net gain (BNG) promote imminent change but could impede development.
With the housing crisis intensifying, there is a growing need for more affordable housing and initiatives to help first time buyers. But the First Homes policy has been largely ignored, particularly in the South East because of unaffordability. While the housing numbers proposed by the government were only ever a starting point, it has been announced that the national housing targets will be advisory only. The implication is that if authorities can identify established planning constraints (for example Green Belt), they may be able to ignore suggested targets and revert to delivering what they think is acceptable environmentally. There is a danger that this will decrease the number of new homes being delivered. Although the national 300,000 per annum homes target remains, it is now even less likely to be met.
New policy needed to bring about change
Over the last 12-18 months the sales and lettings markets have been marching forward at some pace, with both seeing double digit percentage increases. These circumstances though are traditionally unusual, with the lettings and sales sectors normally having an inverse relationship. As mortgage rates rise and house prices begin to fall, the sales market will almost certainly experience a slowing in transactional activity in the year ahead. As such, we expect to see a return of the typical model whereby demand and activity in the rental market will rise in the year ahead. With many households feeling the squeeze in the mortgage market, many would-be buyers will be put off moving into the sector and opt to stay renting for a little longer.
With tenant demand likely to increase this will translate into rental growth continuing for some time.
01223 403330
Head of Cambridge Residential
Anton Frost
The outlook for the investment market is rather uncertain, and we suspect that the challenging mortgage environment will see some private landlords opt to sell up and offload their investment. However, there will be others who will embrace the opportunity to enter the market, taking advantage of falling house prices. There is another cohort of investors who are cash-buyers, and this group in particular will find a fall in house prices a great advantage. Having said all that, we don’t anticipate that the year ahead will see any great change in the supply-side of the lettings market. And with tenant demand likely to increase this will translate into rental growth continuing for some time. Rental growth that we have experienced over the course of the last 6-12 months is unlikely to continue at the same pace as tenants simply cannot afford to continue paying double-digit rent rises, but we anticipate in the region of 5%-6% growth over the year.
020 7518 3234
Head of Residential
Lisa Simon
01865 404425
Head of Oxford Residential Lettings
Chris Way
01904 558231
Head of York Residential Lettings
David Sinclair
UK industrial rental growth is now slowing. However quality stock remains in short supply and the market will remain tight in 2023, given the ongoing robust level of occupier demand and limited development coming on stream during the year. True, we may see more second-hand units coming back to the market as some occupiers scale back operational portfolios at break or expiry, and insolvencies may well rise, but the impact is likely to be modest. Supply constraints will exert some upward pressure on rents, but industrial occupiers face an uncertain economic environment together with significant costs pressures ranging from wages to energy, as well as higher business rates bills from April. We therefore expect to see only subdued, sub-inflation rental growth during 2023. But the mere fact that we do not expect rents to fall, given the challenging economic outlook, illustrates the resilience of the sector. Developers have been challenged by rocketing build costs and supply chain problems, together with the rising cost of debt. In addition, the commercial market has witnessed a significant fall in capital values, as investors have reassessed their risk assumptions following the rapid rise in long and short-term interest rates. Following its exuberant rise in values, the industrial sector has experienced by far the sharpest correction.
Those starting on site in 2023 could face limited competition and be in a strong position to capitalise on lower land values.
0121 824 4387
Partner, Industrial
Adam McGuinness
All of this is dampening development activity, and there has been a shift in land values in the second half of 2022, with falls apparent in many locations. The extent to which construction activity recovers will partly depend on how quicky the rate of build cost inflation eases. With contractors less busy, and assuming an easing of global supply chain disruptions and falling general inflation, build cost inflation should decelerate during 2023. But continued labour shortages plus upward pressure on wages will limit the rate at which this occurs. Those starting on site in 2023 could face limited competition and be in a strong position to capitalise on lower land values, ongoing robust occupier demand, and the benign outlook for rental growth. Indeed, the market for prime sites is currently holding up well, and some sites within the M25 have recently shown an increased bidding tension which may help the recovery of land values. An additional challenge for developers is to put future-proofing and flexibility at the forefront of design, with energy efficiency particularly in the spotlight. For those that get development right, we think 2023 can be a profitable year.
0121 824 4396
Nick Waddington
Despite sustained inflation and elevated input costs, market sentiment has held strong for plots of land of all sizes in prime locations. The agricultural industry in England and Wales has proved resilient over the last 12 months, visible in the continued growth in land values. The market is often cash-driven and largely sustained by existing wealth and rollover funds, and so is subject to less exposure to the increasingly expensive debt market. Farmland offers stable returns and proven capital growth over long holding periods and a low correlation to other assets which typically witness greater volatility.
Scarcity of available land is still problematic and will serve to uphold values in the coming months. More supply has been coming to the market but is being met by healthy demand. Whilst the fallout from September’s ‘mini budget’ continues for now and price sensitivities have arisen in some areas, overall land values are looking likely to hold firm in the immediate future.
Market sentiment has held strong for plots of land of all sizes in prime locations.
The industrial resilience
01962 833386
Head of Rural Agency
Andrew Chandler
The trends that have upheld the agricultural land market in 2022 will continue, or even intensify in some areas, into 2023. Environmental players, for instance, will bring ‘green’ money to the market at a faster pace as the natural capital market matures. More opportunities will develop for landlords to lease land for environmental improvement or deliver it themselves and sell the enhancement to developers under land management agreements. These players also bolster the value of secondary and tertiary land, which could allow for measurably greater environmental benefits when restored or improved. Estates with multiple income streams or strategic development potential will continue to be in high demand. Investors are increasingly looking to spread risk through diversification, which has become particularly important as inflationary pressures cause disruption to farming businesses. Although stubbornly high build costs and a continued squeeze on farming incomes may hold back diversification projects at the start of the year, we expect that this will resume in the near-term.
Scarcity of available land is still problematic and will serve to uphold values in the coming months.
Allied with the UK’s commitment to net zero, new waste management initiatives were introduced in the 2021 Environment Act. Notably, it extended the responsibility for producers of packaging to pay for the full net cost of waste disposal, promoting a more sustainable use of resources and a move towards a circular economy. This is likely to further incentivise re-use and recycling and the development of innovative recycling and recovery solutions, including technologies to convert waste plastic into hydrogen. The industry will also benefit from the proposed ban on the export of plastic waste. Parliament’s Environment, Food and Rural Affairs Committee (EFRA) published a report in November 2022 calling on the government to implement a ban by the end of 2027. To achieve this, the UK will need to reduce plastic use, increase domestic capacity to reprocess waste and support research into new technologies and materials. It has the potential to prompt a tremendous growth in recycling infrastructure and inject huge amounts of capital into the waste sector. A government response is due in January.
0121 3899647
Associate Partner, Infrastructures
Michael Hayes
We predict abandoned mine workings (shafts, water bodies) being increasingly repurposed as sources, stores and sinks of energy for heat and cooling as well as projects promoting grid scale energy storage using compressed air and gravity. Net zero commitments and the likely inclusion of energy from waste into the UK Emissions Trading Scheme will likely present opportunities in the development and retrofitting of carbon capture technology to the UK’s energy-from-waste (EfW) infrastructure. Great opportunity also comes from food waste recycling, which will promote further advancement in the EfW sector. The Environment Act introduces mandatory separate food and general waste collections across the UK from 2023, with the goal of eliminating food waste from landfill by 2030. However, reducing food waste and food waste recycling has already been cited as a key priority for businesses when considering their green agenda. As the sector grows, EfW technologies will develop with it.
Levelling up and Investment Zones:
In the context of the political and economic upheaval that occurred during 2022, it is increasingly difficult to predict the future of planning policy. February’s white paper launched the levelling up agenda; draft legislation for which was produced in May in the form of the Levelling Up and Regeneration Bill. However, it appeared to drop off the agenda during the political turmoil of July, only to then have regained momentum upon Michael Gove’s return as Secretary of State for Levelling Up. It is now progressing through Parliament, but not without controversy. We have seen similar consternation over Investment Zones, which were launched by Liz Truss but have disappeared in all but name under Prime Minister Rishi Sunak.
Today’s Investment Zones will succeed in the context of levelling up only if the benefits are extended beyond the R&D hubs and provide the necessary housing at an affordable level, connected by sustainable public transport.
0113 203 1095
Head of Planning North
Sarah Cox
Investment in the areas surrounding universities in Manchester and Leeds could benefit if the towns between the two can be bolstered by the Northern rail line.
The original Investment Zone concept identified areas for accelerated growth, free of regulation and certain taxes. In contrast, its replacement is less ground-breaking, intended to refocus investment around established R&D and so to build on existing investment rather than create new growth areas. Ironically, the original concept of an Investment Zone was arguably more closely linked with the levelling up agenda than its replacement.
Are Investment Zones consistent with levelling up?
The revised Investment Zone strategy is perhaps more aligned with the philosophy of the Oxford Cambridge Arc which was ‘dropped’ early in 2022. Like the Arc, today’s Investment Zones are intended to develop areas with proven capabilities in science and technology (or areas with a clear prospect to have the capability). Like the Arc, Investment Zones risk reinforcing already prosperous areas without delivering the ‘ripple effect’ of regeneration. To succeed in the context of levelling up, the benefits must extend beyond the R&D hubs themselves and into the ‘hinterland’, providing the necessary housing at an affordable level, connected by sustainable public transport. Perhaps the fate of the Arc was sealed when the proposed road link between Oxford and Cambridge was abandoned and plans for housebuilding fell away. The location and development of Investment Zones elsewhere could learn from this: investment in the areas surrounding universities in Manchester and Leeds, for example, could benefit if the towns between the two were bolstered by the Northern rail line; but to focus investment in the cities at the expense of the towns could be counter to the levelling up of the areas considered most in need.
While considerable attention is paid to the Levelling Up and Regeneration Bill, many question whether such a contentious piece of legislation will enter the statue book during this parliamentary term. Political opposition has already slowed its progress and is likely to remove the imperative to push it through. But there is another mechanism by which planning reforms can take place: the suite of development policies intended as an appendix to a revised NPPF. This would provide the opportunity for changes in policy on issues such as affordable housing, and energy efficiency. History has shown than the bolder the planning policy, the less likely it is to be enacted. Perhaps a more realistic expectation for 2023/24 is some ‘tidying up’ of policy through the NPPF.
Political realities
Wholesale change or unworkable inconsistencies?
Tenants enjoy build to rent developments for the amenity benefits and the straight forward, well-managed and less stressful rental process than the alternative, private landlord market. For planners and local authorities, build to rent schemes offer transparency on Discount Market Rent levels and integration of tenures. The lettings sector will almost certainly continue to see strong tenant demand in 2023. However, supply in the sector is very tight, a fact that has been well established for some years now. From a planning perspective, local authorities are very keen to add to the rental market but in a well-managed, integrated fashion and this is where the build to rent industry has been received much more positively.
Local authorities are very keen to add to the rental market but in a well-managed, integrated fashion.
We expect to see more clients look seriously at build to rent if they are in the early stages of their schemes.
0207 5291511
Jessica McSweeney
Since build to rent is now more fully recognised in both the National Planning Policy Framework and the London Plan, local authorities now have better guidance and a stronger regulatory environment to enable permissions and have a better understanding of the tenure itself. We expect that next year we will see more funds and developers looking to diversify their asset mix by looking at build to rent schemes in earnest as the build to sell market will undoubtedly experience a slowdown. The benefits of build to rent schemes from a planning perspective are now being more fully understood. While build to sell developments require an affordable housing element that is often segregated from the private sale scheme, a build to rent development is ‘tenure blind’ whereby the mix of tenants is across all floors and corridors leading to better integration. For local authorities and developers this type of build is much more preferable and obtaining planning permission on that basis is a welcome advantage.
In the year ahead, we don’t expect to see many schemes that are in development now pivot from build to sell to build to rent. The two tenure types and their associated builds can be too complex to make an easy switch. What we do expect though is to see more clients look seriously at build to rent if they are now in the early stages of their schemes. If the sales market is looking at two or more years of little to no growth, and local authorities favour the integration that build to rent developments offer, it seems a clear choice for developers, funds and investors to move more readily to the sector.
Head of BTR
Proposed new Minimum Energy Efficiency Standards (MEES) will mean that with effect from April 2023 landlords of commercial properties with an EPC rating of F or below will be barred from collecting rent from pre-existing tenancies. This policy is subsequently proposed to apply to buildings with an EPC D rating and below with effect from April 2027 and C or below from April 2030, in the absence of the landlord qualifying for an exemption. Despite the fact that the proposed new regulations have yet to be adopted, those businesses that are facing an imminent break option or lease expiry, and that are keen to “decarbonise”, are developing real estate strategies to avoid leasing accommodation that will not be compliant when the new regulations are proposed to take effect. Landlords of buildings with poor green credentials are finding it challenging to relet space that becomes vacant. This trend is gaining momentum as businesses shun low-grade space and trade up into environmentally friendly accommodation to demonstrate that they are observing their corporate environmental and social policies.
The office development pipeline will not address the current undersupply of ‘green’ grade A accommodation.
020 7016 0722
Head of Tenant Representation
Michael Pain
While footloose occupiers are increasingly placing environmental considerations towards the top of their checklist of property selection criteria, the trend away from low-quality properties with poor environmental credentials is being further reinforced by the need for employers to provide a vibrant, attractive, sustainable work environment in order to underpin a return to the office, as well as recruitment, retention, productivity and wellness strategies. Human resources issues and the proposed tightening of environmental regulations are therefore conspiring to reinforce the structural shift in demand towards new and refitted, ‘green’, energy-efficient grade A buildings, leading to a two-tier office market.
Supply is not keeping pace with demand in some of central London’s sub-markets - especially in the West End and Midtown where rent-free periods have been contracting over the last twelve months and where there is upward pressure on rents for best-in-class properties. Although demand for office space is likely to weaken over the next few quarters in response to forecast lower economic growth, the medium-term outlook for the London office market looks promising. Notwithstanding Brexit, London remains Europe’s premier financial services hub. The capital also continues to dominate the global league tables for inward investment in the technology sector, which will ultimately feed through to increased job creation – the fuel that fires demand for office space. The office development pipeline, which typically lags the market by 2-3 years, reflecting construction timeframes, will not address the current undersupply of ‘green’ grade A accommodation quickly. Supply-side constraints throughout most parts of central London are therefore likely to underpin the grade A office market during 2023 as choice becomes more limited for footloose tenants.
Undeniably, 2022 was a profitable year for the energy sector, although consumers large and small have suffered immeasurable challenges as a result. The war in Ukraine disrupted already volatile fossil fuel markets, highlighting the necessity of domestic energy resources and security. This has prompted immense capital injections into renewable energy and the expansion of domestic generation capacity, creating a perfect storm of comparatively cheap capital and high energy prices, leading to unprecedented levels of returns. Even from the second to third quarter 2022, renewable generation capacity grew by 6.5%, with offshore wind growing 23% (Department for Business, Energy and Industrial Strategy). Over a longer timeframe, capacity is now six times greater than the same quarter in 2010. Over the past year (to December 2022), renewables and alternative energy sources (such as nuclear, wind, solar PV and biomass) have accounted for 58.3% of the UK’s energy generation (National Grid). Renewable energy is a crucial element of the UK’s net zero strategy, and so this trend is likely to continue into 2023 and beyond with most commentators not expecting prices to settle to a ‘new normal’ until at least 2026.
There are limited opportunities to deploy capital at scale, so competition is at fever-pitch.
Opportunities from Biodiversity
01223 326829
Head of Transactional Services
Miles Thomas
There are, however, major obstacles to delivering renewable energy technologies, putting the UK’s net zero targets at risk. There are many players in the market with enormous sums to invest into sustainable projects, but there are limited opportunities to deploy capital at scale, so competition is at fever-pitch. With opportunities becoming ever scarcer, investors have moved further upstream, taking more and more development risk, especially in the pre-construction market. Here, some are buying into project pipelines without connections to the electricity grid, where they find themselves competing against huge numbers of applicants for an increasingly rare commodity. Lengthy planning procedures and the high costs associated with procuring renewables projects during and just after a global pandemic have also been cited as major challenges, among many others. However, promises of record returns have more than balanced out these hikes and a stabilising global shipping climate will certainly help maintain an exciting level of return in the space. We anticipate increasing levels of M&A activity as access to projects becomes further constrained. A new breed of market entrant will add further competition. Whilst stakeholders have mainly been developers to date, institutions and corporates have been looking to invest (whether through funds or directly). Numerous local authorities and government departments have ongoing renewables projects, for example. Pressure is mounting in both the public and private sectors to secure their domestic energy supply, reduce costs and decarbonise at the same time, and we can expect more participants to enter the marketplace in the near-term.
The Autumn Statement needed to strike a balance between significantly reducing public expenditure and boosting growth. In these circumstances, it was reassuring that the government committed to delivering key rail schemes including core Northern Powerhouse Rail (linking Liverpool, Manchester and Leeds), East-West Rail (from Oxford to Cambridge); and HS2 to Manchester. Infrastructure investment is vital for improving the UK’s poor productivity performance and raising the trend rate of economic growth from its recent anaemic levels. It must also be key if the government is to make progress with its ‘levelling up’ agenda. Telecoms infrastructure, in particular, is vital for the UK’s global competitiveness. It is therefore welcome that the government has reaffirmed its commitment to Project Gigabit, which aims to achieve at least 85% gigabit-capable broadband coverage by 2025 and nationwide coverage by 2030.
The government’s commitments send out a clear message internationally.
Levelling up and Investment zones
0121 794 6243
Partner, Infrastructures
Christian Green
The government’s commitments send out a clear message internationally that the UK sees infrastructure investment as a major tool for improving our economic capacity. This is important for locations such as Oxford and Cambridge which are competing globally for science and technology occupiers. Infrastructure is a vital catalyst for regeneration, employment growth and housing development. Against a challenging backdrop for housebuilders, the government remains committed to building 300,000 homes per annum, a target that has been consistently missed by a considerable margin. Infrastructure must be an important part of raising the bar in this area, which is vital for both economic growth and social justice. Despite the positive announcements in the Autumn Statement, there is no room for complacency. A positive but challenging year lies ahead that will require a collective effort from both government and industry to support the ambitions for investment in infrastructure. We hope that 2023 will see further progress with getting the next stages of HS2 legislation through parliament. Infrastructure investment is inherently long-term, whereas political decision-making tends to be shorter-term. 2023 should be a year of continuity, where the delivery of key infrastructure projects can gain momentum.
