2018 property trends

With 2018 in full flow, we have identified some of the topics that will be influencing the UK real estate sector through the year. Below are a selection of legal changes and social trends likely to impact property transactions in 2018. 

We are also preparing a team to join the real estate sector in Cannes, France for the annual MIPIM conference (Le marché international des professionnels de l'immobilier). Paul Paling, Paul Beanlands, Sarah Phillips, Sam Poulter and myself, Stephen Newson, will be attending MIPIM from 13-15 March 2018 – please get in touch if you would like to arrange to meet.

Overseas Investment

The government has now confirmed that it intends to follow through with its proposals for a new public register for those owning and controlling overseas entities that own UK property or participate in UK government procurement.

These proposals are the result of the government's anti-corruption strategy for 2017-2022, which stated that such a register would require overseas legal entities to provide information if they own or purchase property in the UK, or are participating in central government contracts. A draft bill is expected by the summer.

This additional burden on overseas investors coupled with government plans to eliminate capital gains tax relief for overseas buyers of UK commercial property in 2019, could cause concerns that the attractiveness of investment in UK infrastructure will begin to be undermined at a time when it is most needed. Given that 80% of investment in London offices came from overseas investors in 2017, this may have a temporary impact on the general market.

However, the changes merely bring the UK in line with most other developed countries, and there is strong optimism that the attractiveness of UK commercial property will continue given that the pound continues to be weak, and the UK still offers comparatively higher returns and lower risk than other jurisdictions.

Occupier expectations and demands

People's expectations of their working lives are changing rapidly, and this is closely linked with what tenants are now demanding from their landlords. An increase in demand for flexibility in corporate portfolios is reflected by a trend towards shorter leases and more break rights – allowing businesses to flex, shrink, expand and quickly take on new projects. Creativity, innovation and collaboration have become key concepts of businesses which need to be supported by their workspaces.

Wellness and staff satisfaction are also becoming integral factors for occupiers when choosing buildings and locations. According to Cushman and Wakefield, WeWork was the biggest taker of commercial property space in London last year, a trend which is only set to continue. It enticed occupiers such as Google, Amazon and Deutche Bank through its shorter-term tenancies and contemporary features such as fluid and diverse space options, top-of-the-range IT systems accommodating fully agile working, and rooftop bars. Derwent London's White Collar Factory boasts the highest rating for its connectivity, along with a rooftop running track. Landlords can no longer sit back with the perception that these demands are far into the future – it won't be long before these are given expectations of occupiers.

Please see our article on 'The increase in flexible office working and its impact on commercial leases' for more information.

Energy Efficiency minimum requirements

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (Regulations) will introduce a minimum energy efficiency standard for landlords of domestic and commercial privately rented properties. This minimum standard is currently at Band E, but is predicted to be raised over time.

Subject to exemptions, the result will be that landlords of privately rented properties with EPC ratings of F or G will not be able to grant a new tenancy or extend or renew an existing tenancy of those properties from 1 April 2018. Additionally, from 1 April 2020 landlords will not be able to continue to let domestic properties with those ratings, and from 1 April 2023 they will not be able to continue to let commercial property with those ratings.

The Regulations originally intended this to be at no cost to landlords, with relevant improvements being financed by pay-as-you-save funding, grant funding or subsidy. However, landlords will need to ensure they are considering the impact of the Regulations on their properties and continue to reconsider the application of any relevant exemptions, else they risk facing a fine of up to £150,000 per property and publication of non-compliance.

Furthermore, the Department for Business, Energy and Industrial Strategy has now launched a consultation proposing to include a landlord financial contribution element for landlords of domestic properties, capped at £2,500 per property. If this becomes the case, landlords of sub-standard residential properties may find themselves faced with significant costs.

Technology

Throughout 2018 we will see a continuation of the changes now happening through the adaption of technology to support existing concepts within Real Estate but also to disrupt the sector as we know it.

The adoption of smart building technologies is predicted to grow, and occupiers will expect seamless integration of technology throughout their buildings – especially given the fast growing market of technology companies as occupiers. JLL's 2018 Market Review predicts a rise in Artificial Intelligence and machine learning in improving utilisation, monitoring employee experience, measuring financial performance and operational excellence objectives.

Please see our article on 'PropTech's influence on the Real Estate sector' for more information.

Registered Land and Chancel Repair

Although chancel repair liability has been removed from the category of overriding interests affecting unregistered land, there has remained some uncertainty as to whether an unprotected chancel repair liability would be rendered void against a purchaser and its successors in title. The Law Commission has now confirmed it intends to clarify that "chancel repair liability does not bind purchasers of land, unless it is registered – and therefore visible to purchasers". This will be a welcome clarification and will mean chancel repair search fees and insurance premiums will no longer be necessary for the majority of properties.

Land Registration Act 2002 update

Land registration is integral to the ownership and transmission of property in England and Wales. In 2017 the government confirmed that it aims to achieve comprehensive land registration by 2030, and a report (and possibly draft bill) to update the Land Registration Act 2002 is expected during the course of 2018. The Consultation reviewed aspects of the LRA such as whether the Land Registry should continue to provide a full indemnity to victims of fraud. These proposals, if taken forward, may result in mortgagees seeking to rebalance the risk through indemnity insurance, which would push up the cost of lending for consumers thereby having a material impact on lenders.