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An exciting year ahead for real estate

Jason Constable, Head of Real Estate, believes the outlook is good for the ever-adaptable retail estate sector in 2022 as it responds to new challenges.

Supporting the sector

2021 was a year in which we were pleased to be able to support many of our landlord clients through what were still extraordinary times, with many tenants absent or unable to operate in the early part of the year.

Despite the ongoing impact of Covid, I was also very pleased that we were able to bring on board some high-profile new clients during what was my first year as Barclays’ national head of real estate, including three sizeable regional house builders. I've been very vocal about our support for the housing market and what we can do to help accelerate the delivery of much-needed new housing.

We also took several of our larger real estate clients into the debt and equity capital markets, enabling them to diversify their funding sources. In the year that the UK hosted COP26, I’m pleased to say that a number of those issuances were undertaken with a strong sustainability lens and distinct environmental, social and governance (ESG) criteria – commitments that will no doubt make a useful contribution to the nationwide efforts towards a net zero carbon future.

Activity on the up

It’s impossible to second-guess the effects of the Omicron variant, but in 2022 we expect to see a continuation of the economic recovery that is driving increased levels of activity in real estate. Certainly, we know the housing market is incredibly buoyant – all the house builders I talk to say they can't build houses fast enough because they're selling as quickly as they’re built.

The UK real estate market’s resurgence has, to some extent, been stimulated by renewed overseas investment and I don’t see any change in that trend in 2022, but I see another ‘shot in the arm’ coming from the government’s ‘levelling up’ agenda. While levels of activity in London have been encouraging, the same has been true in some of our main regional cities as increasing numbers of corporate occupiers move out of the capital and into the provinces, with the ripple effect driving demand for housing.

Opportunities and challenges

I think the ESG agenda will continue to be both an opportunity and a challenge for real estate in 2022. To help the real estate sector seize the opportunities, we’re launching a new green lending framework as part of our residential development finance offering next year. The framework is designed to make it easier for smaller real estate businesses and private family propcos to access green financing products and I believe this will be a key market differentiator for us.

ESG will present challenges for those of our clients who face the cost of upgrading older properties, so another focus for us next year will be on transition finance to support current or new clients with the investment they need to bring properties up to the required standards.

I’m really excited about our continuing support in 2022 for the delivery of new housing through our £1bn Housing Delivery Fund in collaboration with the government’s housing accelerator body, Homes England. Our aim is to help smaller developers build more quickly and by working with Homes England we can offer borrowers more affordable loans, giving greater access to funding for those who want to progress more schemes at a faster pace.

I also see great opportunities for growth in the rental sector, particularly build-to-rent and single-family housing, and I expect to add to the business we’re already doing in this space.

Continuing structural changes

Looking at the obstacles ahead, supply chain pressures are a topic of conversation with all our clients at the moment, with many businesses facing not just rising costs but the logistical headaches of getting materials in the right place at the right time in the right quantities. Wage inflation and labour shortages, especially in construction, will continue to be a concern for many businesses. Meanwhile, our clients in hospitality and leisure will be anxiously monitoring the latest development on the Omicron variant, although the new £1bn government support fund for the sector will be welcome.

The structural changes in the retail sector, accelerated by Covid, will no doubt continue in 2022. With consumers’ continued migration to online shopping and drastically reduced footfall for bricks-and-mortar retail space, owners and occupiers will need to work hard to repurpose retail real estate and we may see more change of use to residential and other asset classes. At the same time, of course, online shopping will have positive impacts on logistics real estate.

The long-term effect on the office sector of hybrid working is still unfolding before our eyes. Businesses that rely heavily on office workers who are now working from home seem likely to continue to face falling revenues, while office landlords are still coming to terms with changing occupational demand.

Soaring house prices have of course benefited our house builder clients in the past 12 months and covered increased building costs. With higher interest rates, I think we'll see a little bit of the heat taken out of house price growth next year but I'm generally feeling pretty upbeat about the housing market in 2022.

I think the real estate market is going to remain very competitive across many asset classes in the year ahead, and I've always found the sector to be adaptable whatever the challenges it faces. I've been very open about our lending growth ambitions in real estate and hopefully that endorses our confidence in the sector.

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