The Martin’s Properties roundtable series with CoStar News brings together a panel of experts to discuss key property trends. The latest topic was "Opportunities and Challenges for Property Development in 2025 and beyond".
The panel was: Richard Bourne, chief executive, Martin’s Properties; Gregor Bamert, head of real estate debt, Aviva Investors; Richard Bains, managing director, Chancerygate; Ben Johnson, planning director, Obsidian Strategic; Sarah Brown, director, Tate Hindle; Sophie Smith, associate, Forsters; Paul Smyth, partner, Goodrich Consulting; Mark Halloran, director, Insignis Consulting
A new government has been installed since the last roundtable, which has led to changes, and proposed changes, to policy. The panel discussed the impact and opportunities of these reforms, alongside best practice in navigating the complexities of the planning system, biodiversity net gain, environmental, social and corporate governance requirements and power supply.
Restoration, retrofitting and future-proofing were key topics as developers create assets that aim to be fit for multiple uses and with future occupiers in mind. The heightened demand for enough energy and enough power supply remains one of the principal challenges across the sector, but the inflation that hit construction costs is lessening, making pressing on with development more viable.
Paul Norman: With a new government comes new policy. What had been the impact of this and the opportunity?
Richard Bourne: Clearly there are potential opportunities for developers and housebuilders with housing targets and faster planning processes planned. Changes to Agricultural Property Relief and Business Property Relief may also release more land for development. However, the impact of the various policy changes is yet to be seen. We welcome many of the proposed changes, but what successive governments have proven is that reforms to development and particularly planning take more than five years to implement and are difficult to make successful. The planning system requires digitisation. An extra person in each local authority will not make sufficient impact to implement the efficiencies needed. Whilst the government are encouraging development with headline grabbing announcements, there are still a myriad of challenges for developers to manage, including viability with mounting costs, affordable housing contributions, [biodiversity net gain] and power availability.
Mark Halloran: The planning process is becoming even more onerous for developers. There was a time when people would commit to a development based on a set of drawings, but the cost of planning to clients now is very high and changes the risk profile. The release of land that might come through is a great opportunity for developers.
Richard Bains: The new government has brought stability to our tenant base and decisions are being made. The rhetoric is right but, as ever, the devil is in the detail. We see stability in the investment market. Investors have a clear road map for the next four years. Similarly for occupiers, who are still facing some head winds, they can now plan for what’s coming.
Sophie Smith: The concept of green belt/grey belt is helpful as it introduces the recognition that lots of the green belt is already built on. There could be very real opportunities for people who own in the green belt, particularly for those sectors with an existing base in green belt areas, for example film studios north of London.
Sarah Brown: There are now hurdles at every point in the development process and this is exacerbating the already slow planning process.
Ben Johnson: The government has made a strong start on revised planning policy foundations at a national level. The acid test however, is ultimately how local authorities will respond to these major changes in policy through the new [national planning policy framework]. Resourcing at officer level remains a challenge and the structure of how planning committees determine applications may need some changes.
PN: What is the significance of the launch of the UK Net Zero Carbon Buildings Standard?
Richard Bains: Net Zero Standard has been welcomed by investors who have green targets and also inherently high standards of development. Most occupiers are less interested and are focused on costs and location. However, larger institutional occupiers are very focused on ESG.
Gregor Bamert: It helps to have clarity and standards and benchmarks to work towards, even if it does then pass on the burden to the proof stage.
Richard Bourne: I agree that ESG is driven primarily by property owners and investors, rather than occupiers. As custodians of these buildings the responsibilities lie with us. At Martin’s Properties, we look at both the carbon going into developments and look at the operational carbon our buildings are using through monitoring and clauses within our lease agreements. Retrofitting is just as important now, if not more so, than new developments and the new standard provides clear standards for new and old buildings which is helpful.
Mark Halloran: Ultimately this will lead to further costs for developers, but it will bring consistency across the board, and in turn hopefully help with the standardisation of ESG ratings for the built environment. The challenge will be within materials selection, the availability of more sustainable materials is now increasing with electric arc furnace steel and GGBS [ground granulated blast-furnace slag] concrete now readily available.
Paul Smyth: Those earlier adopters will benefit, and I hope it will bring others up to speed. However, fundamentally, a sustainable solution can only be used if the supply chain is there. Being a pioneer and paving the way is vital for creating these standards, however it can be an expensive movement. Some [small- and medium-enterprise]occupiers are more cost conscious, and their focus is on surviving, rather than prioritising sustainability.
PN: What is the impact and opportunity created by the increased requirements around biodiversity net gain?
Sophie Smith: Biodiversity net gain is now mandatory, and there is no getting around it. Local Authorities now face the challenge of upskilling their workforce with resourcing challenges. A problem we see on many sites is the huge shortage of ecologists. Clients are considering the red-line boundaries for planning and purchase to ensure the baseline BNG value of the site is not higher than it needs to be. The BNG requirements lack an allowance and tolerance for nuances of different sites – it is a blunt, one-size-fits-all approach regardless of how high or low the baseline level of the site is.
Paul Smyth: We have been encouraged by working with partners who are able to identify BNG through the use of AI during the initial viability stages, doing high-level appraisals.
PN: What is key in design when looking to future-proof developments?
Sarah Brown: Sustainability is leading innovation across development. There is a desire in all aspects to retain the existing fabric of a building. We are seeing a more collaborative approach and small steps making a big impact. There are many different avenues to future-proofing; as more products are coming in, there is more willingness for people to retain more, rather than building from scratch.
Paul Smyth: We see sustainability as a big drive in the industrial spaces ensuring that frames are built mindful of what the next occupier will ask for. This includes reusing steels.
PN: What is key to managing power availability for developments?
Mark Halloran: Future-proofing power is important for occupiers. However, the issue is power availability and over-estimation of power needs. I estimate that most occupiers only need around 50% of their capacity. The government should review power needs and release unused power capacity. The key is early engagement with the network provider.
Sarah Brown: Everyone has turned their gas off and is turning to electricity. The sector needs to look further afield for innovation within this space such as battery power. There is not enough electricity production to cover the switch from fossil fuels to electricity.
PN: On construction, what is happening with build contract pricing and financial and environmental sustainability?
Paul Smyth: Following COVID there was hyperinflation across all construction costs, which wasn’t sustainable. This year we’ve seen a 6% reduction in costs for big-box development, and there is a general downward pressure in construction costs. There is definitely a desire within the supply chain to secure work. We are also seeing a very close range in tender prices which suggests the market is tight. However, whilst the number of insolvencies has slowed, we are expecting more to come through which will have an impact on sub-contractors.
Richard Bourne: Schemes that were previously unviable are now becoming supportable as values and costs align, which is positive. Picking up on Paul's point, we spend a lot of time checking the financial and operational health of contracting partners to ensure we can work together through to completion of the project.
PN: In terms of funding, how is the market for financing developments?
Gregor Bamert: We have seen strong applications from a varied group of borrowers looking for "bed"-related development. There is lots of appetite to fund development across the board from the more conservative lenders to those prepared to take greater risks. Industrial-related construction lending continues to be the most buoyant market. This is an attractive area as the projects are typically less complicated and often can be quicker to build.
Richard Bains: There are a number of new debt funds entering the space, and we are seeing a flight to quality where existing relationships and track record are highly valued.
The roundtable concluded that while the real estate sector has faced challenges in 2024, it also presents abundant opportunities for 2025. Panellists agreed that collaboration, innovation, diligence and adaptability will be essential in navigating these complexities.