Outlook 2022

2022 has started with increased optimism over the future course of the pandemic, and we believe the year ahead presents immense opportunities across a broad range of sectors. Here, our experts across Carter Jonas discuss a selection key themes for the next 12 months.

TRENDS AND OPPORTUNITIES FOR 2022

OUTLOOK 2022

Key topics

Residential

A lack of investors in the buy-to-let market will put pressure on the supply and demand gap in the rental sector

Anton Frost Partner, Head of Residential Lettings, Cambridge

The impact of rising inflation on the housing market will be greater than rising interest rates

Simon McConnell Partner, Head of Residential Sales, Oxford

Commercial

Rural

Omicron versus the economic recovery

COVID is proving a wily and unpredictable adversary, and Omicron has shown that the pandemic retains plenty of momentum. Although this variant is highly transmissible, its milder nature plus higher immunity levels and the successful ‘booster’ campaign have cushioned its health and economic impacts.

Government restrictions should remain relatively modest, and consumer behaviour appears to be a bigger factor, impacting town centre footfall and restaurant bookings, although not helped by the Government’s ‘work from home if you can’ advice. Labour shortages are also impacting, with more staff off sick, self-isolating, or facing increased childcare requirements.

However, we have already seen how quickly economic output is able to bounce back, and UK GDP should still easily surpass its pre-COVID peak this year (although will not be back to where it would have been had the recession not occurred).

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Written by Dan Francis, Head of Research

Importantly, the economy has become much more COVID-resilient. Working from home is now second nature for many, home delivery supply chains have increased capacity and school closures (which impact the availability of labour) are considered a very last resort.

A hallmark of this recession has been a shifting imbalance between demand and supply, as a combination of changing social distancing restrictions and consumer behaviour has caused rapid swings in demand for some products and services. Supply has struggled to keep up, as there is inevitably a lag in how quickly production and distribution chains can respond.

closeup of a young man in an office holding a briefcase and a surgical mask in his hand

Omicron may have increased the perception that COVID is a long-term issue, with the potential for cyclical tightening and relaxing of restrictions to cope with new variants. This could filter through in numerous ways, from corporate attitudes to office requirements to demand for more resilient supply chains. However, it may well also prove an important step in COVID’s transition from pandemic to endemic.

A combination of changing social distancing restrictions and consumber behaviour has caused rapid swings in demand for some products and services

Planning and Development

Omicron versus the economic recovery

Dan Francis Head of Research

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We do not expect that the dynamics of the lettings market will change significantly in 2022. We think that continued strong demand and a lack of supply will push rental growth as high as 5-7% per annum over the next 12-18 months. This lack of supply has been fuelled by several years of falling entrants, and many others who were in situ are now leaving the private rented market as tax breaks and other incentives disappear.

Having said that, the 2016 tax changes are starting to fall out of investor decision-making processes but now the challenge is that investors are competing with a rapid rise in demand from owner occupiers for many of the same type of properties. Only when demand in the sales market falls and house price growth declines will investors find it an easier market in which to purchase.

Unfortunately, this appears unlikely to happen over the next 12 months as we anticipate that owner occupier demand will continue at its current levels. We expect that the change in circumstances that many households have experienced over the last two years will still be a factor over the coming 12 months and demand will remain high as a result.

A lack of investors in the buy-to-let market will put pressure on the supply and demand gap in the rental sector

Row of typical English terraced houses in West Hampstead, London

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Head of Residential Lettings, Cambridge

Anton Frost Partner

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Head of Research

Daniel Francis

Omicron may have increased the perception that COVID is a long-term issue

2020 and 2021 were very much driven by the way we live and work being completely redefined by the pandemic. The demand for extra space both indoors and out, private gardens, home offices and the declining need to be quite so close to key public transport and commuter routes has accelerated demand in some very unlikely areas of the UK.

While we expect this way of ‘flexible living’ will continue in 2022 and beyond, these rapid, ‘extreme’ moves to idyllic but often isolated rural homes, will not continue at the same pace. House moves will become more considered and searches may take longer as a result. What’s more, with interest rates rising (albeit slowly), buyers may take some time to see what the end result will be before making a move.

What’s more, we expect that inflation will impact house buying decisions more than a small rise in interest rates. Any substantial rise in the day-to-day cost of living will see buyers who were sitting on the fence about moving more inclined to delay making a decision, and to wait while costs come down or wages go up.

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Head of Residential Sales, Oxford

Simon McConnell Partner

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The impact of rising inflation on the housing market will be greater than rising interest rates

Rapid, ‘extreme’ moves to idyllic but often isolated rural homes, will not continue at the same pace.

New developments in the build to rent market will focus less on traditional amenities and more on the need for more space as they aim to set themselves apart

Lee Richards Partner, Head of Portfolio Letting & Management

Small, incremental rises in the interest rate are unlikely to impact demand in the housing market in 2022

Leslie Schroeder Head of Residential Research

The build to rent market will become increasingly important over the next 12 months and beyond, as we see a continuation of the trend of private landlords and investors exiting the market over the last few years, leaving sizeable gaps in the supply of good quality rental properties. Institutional rentals are expected to take up some of the availability slack, but still leave a delta between supply and demand. We also anticipate that demand for rental properties will soar next year, as increasingly people are squeezed out of the rising sales market.

Going forward, build to rent developments that want to set themselves apart from others will look to incorporate more green space, more communal living space and more home-working space in their units, as a reaction to households needs and wants having changed during (and because of) the pandemic. These new features will be in lieu of such ‘traditional’ amenities as gyms, pools and concierge services (among others) as schemes look to push the boundaries and stand out from other BTR designs.

We also expect to see further diversification of the BTR product with more builds catering to a wider demographic particularly families, in single family homes. These will be located in suburban and out-of-town locations where to date newer schemes have mainly focussed on young professionals in city-centre, urban areas.

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Head of Portfolio Letting & Management

Lee Richards Partner

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New developments in the build to rent market will focus less on traditional amenities and more on the need for more space as they aim to set themselves apart

Minimal sofa located at the window 3d render.The Rooms have wooden floors and white wall.furnished with white fabric furniture.There are large frameless window looking out to see the garden view.

Following nearly two years of higher-than-average residential transaction activity we expect that 2022 will be the year when things settle down, and by quite a lot in comparison. Although house price growth of anywhere from 2%-5% will probably be achieved, most of this will be because demand will continue to be strong whereas supply will be limited.

There are still a lot of mainly second- and third-stepper buyers out there who haven’t yet found the home they were searching for in 2021. In addition, more will enter the market as they begin to accept that these flexible working policies are likely to be permanent and they can now relocate with more ease. However, vendors remain in short supply and new build homes aren’t always the ‘right’ home for these second- and third-steppers, meaning they will be clambering over each other for a limited amount of supply.

The degree of further interest rate rises that is likely to occur is minimal and this is unlikely to deter many would-be buyers from buying the home they want. Rates would need to rise by two and a half to three percentage points before this would dampen demand in the housing market by any significant degree.

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Head of Residential Research

Leslie Schroeder

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Small, incremental rises in the interest rate are unlikely to impact demand in the housing market in 2022

Demand will continue to be strong whereas supply will be limited

Labour and materials shortages will continue to impact the construction sector

Richard Love Head of Architecture & Building Consultancy

Strong demand across a wide range of industrial and logistics uses will maintain upward pressure on rents and land values

Andrew Smith Partner, Industrial

Grade A office and life science stock will become even more scarce, creating opportunities

Dan Francis Head of Research

The public sector at the heart of regeneration

Alexandra Houghton Head of Consultancy and Strategy

Opportunities from the return of inflation

Scott Harkness Head of Commercial Division

Positives for the high street in 2022

Stuart Williams Partner, Retail

The rise of high-tech building management

Kurt Richards Partner, Property Management

Growing demand for bare land, woodland and habitat-focused holdings

Andrew Chandler Head of Rural Agency, Farms, Land & Estates

Higher environmental protection thresholds will impact rural planning

Nicola Quick Associate, Farms, Land & Estates

Chris Rhodes Head of Rural Valuations, Farms, Land & Estates

ELMS and the transition from BPS

Chris Turner Partner, Farms, Land & Estates

Amy Sweet Surveyor, Farms, Land & Estates

Opportunities from power generation

George Oldroyd Energy Specialist

A range of economic drivers will continue to benefit the logistics sector in 2022. Retailers and manufacturers will increasingly adopt a “just in case” rather than a “just in time” strategy within their distribution networks, reducing global supply chain risks at the expense of retaining more stock. The shift online will continue, further accelerated by Omicron. These factors will help to sustain demand for large distribution warehouses and smaller urban distribution units. However, a continued lack of stock will put further upward pressure on rents and land values.

We believe that the often-overlooked open storage sector will see huge demand in 2022 amid a shortage of sites. This follows strong growth over the last two years, most notably for the highest quality ‘class 1’ sites which are available on leases of two years or more.

Open storage is becoming an increasingly vital urban land use, and is key to servicing sectors such as last mile delivery which require the provision of HGV and van parking. Newer distribution schemes often have site coverage of up to 65%, but parcel operators, for example, typically require a site cover of just 25%-35% to cater for parking and loading. With a further increase in demand for last mile delivery, open storage will be increasingly required. Demand will continue to outstrip supply, but expanding capacity in the sector will remain challenging in the face of strong competition from other uses such as residential.

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Industrial

Andrew Smith Partner

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Strong demand across a wide range of industrial and logistics uses will maintain upward pressure on rents and land values

Often-overlooked open storage sector will see huge demand in 2022 amid a shortage of sites

2022 will see growing demand from all corners of the market for bare land assets that have natural capital, carbon neutrality, or nitrate-offset angles. There will be increased demand from investors, funds and charity operators for tree-planting land, as well as established woodland, with the ongoing focus on nature recovery at the government level fuelling public and private sector interest. We expect the value of these assets to be dynamic over the next 12 months, with natural capital increasing in the market narrative.

Other areas will also see rising interest, for example leisure assets such as holiday lets and camping, either as part of a diversified holding, or standalone. The focus will remain on ‘best in class’ assets, which will deliver results well ahead of the rest of the market.

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Head of Rural Agency, Farms, Land & Estates

Andrew Chandler

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Growing demand for bare land, woodland and habitat-focused holdings

Path through bluebell woods in early morning sunrise

We will continue to see land value spikes in areas with a high proportion of rollover buyers. With further modest rises in interest rates likely, some highly geared borrowers will assess their position and consider selling.

In contrast, the market for openly available farm holdings has been subdued for some time. Reductions to the Basic Payment Scheme (BPS) and wider policy changes will focus the minds of straight farming operators over potential income loss and lower profitability, pushing them to assess their position and consider restructuring or diversifying. The continued erosion of BPS Entitlements will expose those mid-scale farming enterprises which have been unable, or unwilling, to adapt to the changing subsidy regime. We may be seeing more of these types of holdings come to the marketplace.

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Head of Rural Valuations, Farms, Land & Estates

Chris Rhodes

Rural planning will becoming more challenging in 2022 as environmental protection and thresholds are raised, for example the increased requirement to address air quality, ammonia, odour, phosphates and nitrates arising from proposed development. The key buzz word is to achieve “nutrient neutrality” and there will also be Biodiversity Net Gain following the Environment Act. This is likely to add cost and delays to any application so it will be key to plan ahead and obtain specialist advise at the outset.

With the first Basic Payment Scheme reduction in 2021, many farmers and landowners will be considering the impact of the further reductions to 2027 on their business and may be more open to considering diversification opportunities or to making existing assets provide a better economic return.

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Associate, Farms, Land & Estates

Nicola Quick

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Higher environmental protection thresholds will impact rural planning

The key buzz word is to achieve "nutrient neutrality"

It is undeniable that the retail sector will continue to be challenging in 2022, with Omicron creating another temporary reduction in town centre foo, and the pandemic has only accelerated the rental falls which were already inevitable. However, in many smaller market towns and neighbourhood centres, rents have tended to hold up much better, and indeed many locations are thriving.

Numerous national retail chains have either gone out of business, become online-only, or reduced the number of stores from which they operate This has encouraged new entrants to the high street which is having a positive impact on the vibrancy of town centres. Independent retailers have generally weathered COVID well and can now compete for space in better locations than previously.

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Partner, Retail

Stuart Williams

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Positives for the high street in 2022

The food & beverage sector has been performing relatively well, although Omicron is a short-term setback, and additional Government support measures may be needed as more consumers opt to stay home. On the positive side, many restaurants are benefitting from fulfilling the burgeoning demand for home delivery.

The creation of the Class E Use Class Order in 2020 is helping town centres to adjust to the rapid change in market conditions more easily. Most retail premises can now be converted to a variety of other uses such as offices, healthcare, indoor leisure or childcare without requiring planning consent (although other forms of consent may still be required). We expect to see more lettings to occupiers in sectors including healthcare (for example dentists and chiropractors), and some professional services such as solicitors.

Courier in protective mask, medical gloves delivers takeaway food. Employee hold cardboard package. Place for text. Delivery service under quarantine, 2019-ncov, pandemic coronavirus, covid-19.

2027 will mark the final year of Basic Payment Scheme (BPS) payments, with the scheme due to end in 2028. However, following the first BPS reduction in 2021, many farmers and landowners were already considering the impact of further reductions on their business, with many increasingly open diversification opportunities or to obtaining a better economic return from existing assets.

The BPS will be replaced by the new Environmental Land Management Scheme (ELMS). This has three core themes – the Sustainable Farming Incentive; Local Nature Recovery; and Landscape Recovery. The basis for the Sustainable Farming Incentive was announced in 2021, and is aimed at individual farmers, for example through looking at options on a field by field basis.

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Farms, Land & Estates

Chris Turner Partner

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ELMS and the transition from BPS

Many landowners have delayed environmental work through fear of acting too early and missing out on the potential income from natural capital/carbon capture/offsetting schemes.

However, the start of 2022 has seen more details announced on the Local Nature Recovery and Landscape Recovery schemes. These work on a larger scale, restoring and creating new habitats to meet the Government’s aim to reverse species loss by 2030. It will therefore not be suitable for all farmers. These two schemes will use 60% of the available funding and aim to cover 750,000 acres by 2042, with the Sustainable Farming Incentive accounting for 30% (to cover 70% of England’s farmland) and productivity schemes taking the remaining 10%. The payments under the new schemes will be designed to encourage take up and will not be based on income foregone.

Landscape Recovery is even bigger in scale and longer-term than Local Nature Recovery (sites from 1,235 to 12,350 acres and potentially involving 20-year agreements). It will support more radical change to land use, for example by establishing nature reserves, restoring floodplains, or creating woodlands and wetlands. It is likely to involve a responsible body to monitor progress over time. Pilot schemes will be established this year, using two central themes (threatened native species recovery; and restoring waterbodies and improving water quality).

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Farms, Land & Estates

Amy Sweet Surveyor

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Written by George Oldroyd, Energy Specialist

Opportunities from power generation

The government has announced an eleven million pound investment in battery storage to facilitate electric vehicle (EV) charging infrastructure, to deliver high powered charging in locations with limited import capacity. The principle behind this idea is that the batteries can store energy during periods of EV charging utilisation, to then provide rapid chargers with the capacity they need during peak charging times.

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Energy Specialist

George Oldroyd

Omicron has probably increased the perception that COVID is a long-term issue

The Onshore Wind Bill had its second reading in parliament in November 2021 and at the time of writing awaits committee stage. The Bill requires a revision of national planning guidance on onshore wind to allow local authorities to advance schemes in their area. If the bill is passed, this could lead to a surge in landowner approaches in England from wind farm developers, with an increase in the number of wind farm planning applications being submitted.

The last two years have seen a substantial fall in the cost of developing battery storage, increasing the viability of such projects. In addition, the co-location of battery storage with solar developments allows asset owners to maximise income, as they are able to store surplus energy generated and export it to the grid during peak demand periods when electricity prices are higher.

As a result, developers of early solar projects will now want to retrofit batteries to their existing schemes, and we expect to see an increasing number of approaches to landowners. They are increasingly seeking to extend leases on solar and wind energy assets to lengthen their income-generating lifespans.

With many businesses now facing significant pressure to decarbonise and meet sustainability targets, renewable energy developers are likely to explore more “off-grid” opportunities and progress sites close to large industrial estates in a bid to assist the occupiers in their efforts to achieve net zero.

Rural

Battery storage power station
accompanied by solar and wind turbine power plants. 3d rendering.

Windmill electricity turbine with countryside background. Farmland and wind turbines. Myrtleville, NSW, Australia

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Written by Scott Harkness, Head of Commercial Division

Opportunities from the return of inflation

The next few years will be a period of unprecedented change. With strong demand in sectors such as build to rent, healthcare, distribution and the life sciences, there will be significant opportunities to reposition redundant retail and office stock. We will see this ramp up during 2022, as investors increase their weighting in the most attractive sectors, and increasingly see development as a way to achieve this. However, there will be considerable challenges, not least the ongoing shortages of labour and materials and associated rises in build costs, as well as the all-important need to develop in a sustainable way.

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Head of Commercial Division

Scott Harkness

The next few years will be a period of unprecedented change

Distribution will remain a ‘hot’ sector, driven by the perfect storm created by Brexit and the pandemic. We are probably not yet at the top of the rental growth cycle, and investor demand remains strong, with limited stock. The laboratory sector is witnessing an even more extreme demand / supply imbalance, with almost no stock amid insatiable investor demand.

In contrast, there is a mixed picture in office sector, with healthy levels of buyer activity in some locations, notably central London, Oxford and Cambridge, but subdued activity in many markets. This reflects ongoing uncertainty over future demand levels, not helped by the Government’s latest ‘Plan B’ working from home advice, which has no clear end date. We are nowhere near finishing the debate on home working, but pricing should hold up well for prime stock, reflecting occupiers’ flight to quality.

Although social distancing restrictions may impact the market during the first part of 2022, the big story of the year is likely to be inflation. Annual CPI has risen dramatically, from just 0.3% a year ago to 4.2% in October and 5.1% in November 2021, well above most expectations. Rising costs, and the shortages of labour and materials that are its underlying cause, are now top amongst the concerns of businesses. Existing upward inflationary pressures could be further exacerbated if Omicron creates more supply chains disruptions, and CPI could peak above 6% in the first half of 2022.

Property is traditionally seen as a hedge against inflation as it increases the rate of rental growth, and in turn property values. In addition, more leases are now indexed directly to inflation. This contrasts with the potential for lower returns for bonds and greater volatility in equities. As a result, property as an asset class tends to perform well in inflationary periods.

However, inflation is no guarantee of rental growth and property performance is increasingly differentiated but sector and quality. Selecting the right stock in the right sector is more important than ever.

0.3%

5.1%

4.2%

Close up of examining of test sample under the microscope in laboratory.

Commercial

The structural shift in the way we work and shop are fundamentally changing our town centres. Most locations now have a significant oversupply of retail units, with many also suffering from a surplus of poor quality office space that is unlikely to be re-let. The good news is that many business sectors are taking the opportunity to increase their presence, helped by a significant oversupply of retail units and lower rents, as well as recent changes to planning legislation.

A leading example of this is the health sector, where a range of private medical uses including dentists, physiotherapists and chiropractors are taking space in more prominent town centre locations, buoyed by high levels of demand, and strong socio-demographic drivers. In addition, the NHS is increasingly looking at how health services can be provided at the heart of our communities.

We think this concept can be taken further. Local authorities are instrumental in delivering community provisions, libraries, leisure, health, and social care, as well as having to meet housing targets. These could be consolidated into multifunctional spaces alongside the health sector in urban locations, with local authorities at the centre, enabling them to deliver services in a different, more effective way.

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Head of Consultancy and Strategy

Alexandra Houghton

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The public sector at the heart of regeneration

This presents an opportunity for local authorities to be at the centre of the regeneration agenda. They often own land or sites in strategic locations which are increasingly important to regeneration and renewal. Transactions are being agreed at more realistic levels than previously, and town centre sites are becoming increasingly viable, leading to potential opportunities for acquisition in 2022.

We think there is a significant opportunity for local authorities to take the lead, becoming an effective anchor for schemes whilst also delivering services more effectively and putting the public at the centre of that experience. The need for a step-change in service provision and to reinvigorate our town centres creates a compelling opportunity for the public sector to be at the heart of the regeneration agenda in 2022 and beyond.

This presents an opportunity for local authorities to be at the centre of the regeneration agenda.

Whilst there is large quantity of office stock available in London and the major regional markets, the overwhelming majority does not meet the requirements of today’s occupiers. Indeed, a shortage of quality space rather than occupier demand is holding back take-up in many locations.

This presents a major challenge. Office occupiers increasingly want to provide outstanding environments for their employees that underpin the return to the office, staff retention, recruitment, wellbeing and collaboration. They also require high energy efficiency and a low carbon footprint to meet increasingly ambitious ESG targets and to demonstrate their environmental credentials. As a result, footloose office tenants are focusing their property searches on energy-efficient, low carbon footprint, grade A space, a trend that will only intensify in 2022.

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Head of Research

Dan Francis

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Grade A office and life science stock will become even more scarce, creating opportunities

Of course, the pressures in some locations are greater than others. In central London, the balance between grade A supply and demand in the City of London and Canary Wharf continues to favour tenants, whilst those seeking good quality space in many parts of the West End, Midtown and South Bank are faced with a much smaller stock of grade A buildings. Occupiers in many key regional city centre markets will discover an extremely limited choice of immediately available grade A space.

This pic shows Panoramic skyline view of Bank and Canary Wharf, London's leading financial districts with famous skyscrapers . The pic is taken in november 2019.

The same lack of supply relative to demand is true in the life sciences sector, but it is even more extreme, and we see the lack of space in strategic locations as a major constraint. Occupier demand will continue to be turbocharged by the pandemic, assisted by tailwinds such as increasing Government support. Capital values for life sciences space have soared over the last two years, and investor demand will remain insatiable in 2022.

The lack of supply is a significant barrier to entry for investors, and development is an obvious route in a market where stock is in such short supply. It is noteworthy that many recent investment transactions have been primarily development-led. Increasingly, this will involve repurposing existing stock for laboratory use, although physical constraints mean this will not be possible for all potential buildings.

2021 saw shortages across a wide range of construction materials, resulting from a mix of supply chain issues and strong demand (most notably for home improvements during the first lockdown). There are also ongoing labour shortages in certain trades, including a well-publicised lack of lorry drivers.

This has led not only to some construction projects falling behind schedule, but also to rapid and unpredictable rises in the cost of many parts and materials. Developers have increasingly been unable to agree fixed prices in advance of a project, and have therefore faced increased risk.

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Head of Architecture & Building Consultancy

Richard Love

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Labour and materials shortages will continue to impact the construction sector

2022 will see continued shortages of skilled labour, although this will become less noticeable as materials shortages are now the primary concern (without the materials, the labour isn’t required). This could result in less new development occurring, despite high demand for new stock across a broad array of sectors such as build to rent, distribution warehousing and lab space. However, a fall in new development would only alleviate the shortages to a limited extent, as ongoing repair and maintenance still uses a significant amount of labour and materials.

These trends should make repurposing existing buildings a more attractive option, as it is less labour and material-intensive, allowing de-risking, as well as having intrinsic environmental benefits (although this option will always be more suitable for some types of development than others). Another trend that could benefit is modular construction, as this a process-driven construction method rather than being on site, also allowing an element of de-risking (although it is not a cheaper option).

Construction costs are still rising at a rate well above general inflation (which itself now stands at a 10-year high). However, we expect construction cost pressures to ease a little in 2022, as supply chain disruptions ease and demand and supply start to return to balance. We expect build cost inflation to be more in line with general inflation by the end of the year.

Technology is evolving rapidly, and ‘proptech’ will be at the forefront of property management strategies in 2022. It is enabling landlords, occupiers and property managers to interact with each other more quickly and efficiently using new cloud-based software available via mobile app technology.

A key issue facing occupiers in 2022 will be a significant rise in energy costs, and this will bring into focus those buildings where space is not being used efficiently. For example, an office building that is only 10% occupied may still require the entire heating / air conditioning system to be in operation. The need for more fresh air to mitigate COVID risks has also increased the costs of running these systems, as they need to pull in more air from outside the building.

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Property Management

Kurt Richards Partner

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The rise of high-tech building management

Occupiers are increasingly turning to technology, with more sensors to track energy consumption, monitor air quality, adjust heating and lighting systems, and switch them off in unused areas of the building in real time. This ‘smart’ building technology not only reduces costs, but also improves the working environment for staff. Once the current work from home guidance is rescinded, attracting staff back to the office will be important for occupiers, placing an increased emphasis on the quality of the work environment. Indeed, for many landlords, providing the optimum environments for their tenants will be fundamental.

However, hi-tech solutions are not always the answer. For example, “green walls” increase biodiversity and can help to provide more pleasant environments, as well as mitigate the carbon footprint of a building.

This ‘smart’ building technology not only reduces costs, but also improves the working environment for staff

Providing great space for occupiers requires data to be available in real time, that is able to track building usage and performance at a granular level. It also requires the right processes to be in place so that the information is acted upon in a timely manner, improving the service for the end user. We think the technological revolution will ramp up in 2022 and be of key importance in fulfilling a wide range of objectives for occupiers, ranging from reducing carbon emissions to minimising energy costs and attracting staff.

Revisions to NPPF to Address Climate Change

Pete Canavan Associate Partner

The ongoing greenfield/ brownfield debate

David Churchill Partner

Land Value Capture and the Impact of Biodiversity Net Gain

Francis Truss Partner

The Levelling Up White Paper

Sarah Cox Partner

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Written by David Churchill, Partner

The ongoing greenfield / brownfield debate

In October 2021, our team carried out some standard research into the extent to which local planning authorities (LPAs) were unlikely to meet the standard methodology target in their emerging Local Plans.

Then something happened which caused a sharp increase in those figures: Boris Johnson’s announcement at the Conservative Party Conference that his party would not support greenfield development. He referred to the ‘constant anxiety’ of those living in the Homes Counties over their ‘immemorial view of chalk downland’ being ‘desecrated by ugly new homes’.

Until this point, our research was already indicating that, most councils in the south east were unlikely to identify sufficient deliverable sites to meet housing targets, due to major constraints to development, such as areas at risk of flooding, unspoilt AONBs, tightly drawn boundaries around urban areas and other environmental designations.

building industry, lifestyle, architecture

Planning and Development

If local authorities are on the verge of committing to a large-scale garden village or urban extension, any hesitancy in progressing Plans can be understood. Similarly for those due to open up their Plans for public consultation, or submit them for Inspection, hesitation is understandable.

Unfortunately this is not just a case of a few months’ stalemate while we await further clarity through policy: the potential impact on housing figures is more much greater if it requires a Local Plan to be re-written, or an evidence base, having become out of date, requiring further research and analysis. This potentially adds years to the Local Plan process.

When a clear target exists – 300,000 homes per annum – but the main means for delivering it is taken away, that target can only be achieved if an alternative is put in its place.

This potentially adds years to the Local Plan process

The Government had been enthusiastic in its commitment to brownfield development but there are simply not enough urban sites to rule out all rural land from development. Furthermore, brownfield development often brings with it significant constraints: sites are usually smaller than a typical greenfield site, the need for remediation is costly and the loss of commercial or community facilities (which are typically the uses occupying brownfield sites) can have a damaging impact on jobs and community cohesion. The high costs of entry allied with remediation and other costs typically mean housing on brownfield land can only be achieved through greater height and density – flats, rather than family homes. Private and shared open spaces are limited, and if parking standards are adhered to parking must sometimes be provided underground. The result is often the other benefits of development, both monetary and community/infrastructure, are sacrificed. In many cases affordable housing delivery is the biggest loser.

On the other hand, greenfield land has the potential to deliver on the Government’s net zero aspirations and make considerable biodiversity net gains. Paragraph 11a of the 2021 NPPF requires that ‘all plans should promote a sustainable pattern of development that seeks to….improve the environment [and] mitigate climate change’. It is believed likely that a 2022 revision will re-enforce the sustainability goals.

The prime minister’s speech also stated that, ‘levelling up must work for the whole country and is the right and responsible policy, because it helps to take the pressure off parts of the overheating South East.’

Will levelling up answer the question of housing need while preventing further greenfield development? Ideally, levelling up should focus on making less affluent regions more competitive and more accessible, primarily by improving employment opportunities and interconnectivity. We understand that this is part of the levelling up agenda. It must remain at the forefront of thinking, however, because housebuilding alone is not the answer. Investment in sustainable transport such as the Trans Pennine route, and in continuing the move to relocate employment opportunities has the potential to make a real difference.

As we await the publication of the delayed Planning Bill, the direction of future planning policy is uncertain. The housing crisis itself is unquestionable, but the Government’s proposed means of achieving the 300,000 new homes per annum target raises very many questions.

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London

David Churchill Partner

The NPPF was revised in July 2021. Upon publication, it was immediately pointed out that the new version did not mention net zero and that although it referred to the 17 Global Goals for Sustainable Development, it did little to demonstrate how these would be met.

The Government immediately responded in saying that it is, ‘committed to meeting its climate change objectives and recognises the concerns expressed across groups that this chapter should explicitly reference the Net Zero emissions target’. Specifically, it stated, ‘It is our intention to do a fuller review of the Framework to ensure it contributes to climate change mitigation/adaptation as fully as possible.’

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Associate Partner, Oxford

Pete Canavan

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Revisions to NPPF to Address Climate Change

This ‘smart’ building technology not only reduces costs, but also improves the working environment for staff

Likely changes The 2021 NPPF’s focus on sustainability was widely seen as little more than window dressing, and too often overshadowed by, or confused with, design. Furthermore, the NPPF’s references to climate change largely concerned climate change adaptations rather than proactively preventing (or at least reducing) climate change. Following COP26 there is little doubt as to the extent of public concern over climate change. The Government has a policy for reaching net zero, but has not yet clarified what role the development industry can play in that. So what might a 2022 revision include?

Brownfield development Government policy is clearly focussed on brownfield development as an early panacea, but brownfield sites do not have sufficient capacity to deliver the necessary 300,000 homes per annum. Furthermore, redeveloping brownfield land is far from carbon neutral, clearance and remediation often proving very energy inefficient. Planning must move on from saying ‘no’ to greenfield development and instead give greater thought to how it can say ‘yes’. It is not possible both to pull up the drawbridge and to meet housing targets. There’s also a continued question about existing stock. Solutions have included the possibility of leveraging S106 funding to ensure that existing homes and conversions also address the problem. This may be as simple as retrofitting insulation and new heating systems, or as complex as replacing entire 1960s and 1970s housing estates.

Local Plans The proposals within the Planning White Paper – a potential future Planning Bill – must be addressed. To achieve low carbon development, site selection must be more sophisticated. Future development will inevitably involve urban extensions but should focus on densification around transport hubs to reduce car use. Furthermore, bearing in mind that greenfield development will be required, the industry desperately needs a review of the Green Belt. Currently, woefully out of date Green Belt policies are delaying significant amounts of development, especially around London, Oxford and Cambridge.

Impact on the planning and development sector Whether a revised NPPF will have a significant impact is a moot point. Most local authorities have already declared a climate emergency. Most developers have made a commitment to net zero and have evaluated their carbon footprint. We are in a not uncommon situation whereby the policy writers could learn much from the industry. While we welcome the prospect of a revised NPPF, our working practices are unlikely to change significantly as a result.

Local Plans must become more sophisticated, moving on from climate change mitigation to climate change prevention. More specific recommendations, such as the uses of certain technologies, could form part of a national design guide. Importantly, the industry desperately needs the removal of the current uncertainty that plagues it, in the form of the long-awaited Planning Bill.

Revisions to the NPPF are much needed but will not address the development sector’s ability to meet net zero.

Conclusion

Appearing before the House of Lords' Built Environment Committee in November, as part of the inquiry into meeting the UK's housing demand, Housing minister Christopher Pincher said, ‘Land value capture is an important item in our considerations. It's one of the reasons why we're looking at a better system than section 106 and the community infrastructure levy (CIL). So I'd watch this space on that particular point.’

The question for developers and landowners is whether BNG can directly create monetary value on specific sites as an amenity asset, or instead function as a further developer contribution – that is, as a form of land value capture - potentially reducing other contributions (for affordable housing, infrastructure, community benefits) or driving down land values.

Impact on developers Potentially, developers can benefit from attractive, biodiverse sites having greater appeal to consumers. This is already common and is a proven benefit, often delivered in combination with the SUDS strategy. On the other hand, developers (even local authorities) may struggle with the requirement to manage land for 30 years (as required by the Environment Act) because of the management challenges and maintenance liability. This can represent a significant cost. Community ownership is often mooted as a solution, but its benefits are constrained by the need for an underlying entity to provide certainty. Over time, it is likely that developers and landowners will find innovative ways in which to address the requirement on developers to provide BNG and on farmers to meet environmental targets, to the benefit of both – but in the meantime the cost is unclear and consequently the calculation of any additional land value capture will lack the necessary data.

Impact on land sales Land value capture is likely to be expressed as a cost to development, rather than taken into account when a land sale takes place. At this stage its impact is clearer, more definable and upfront. However, the interplay with the push towards zero carbon development is likely to change the dynamic of the discussion over time. However, this change represents an opportunity for more creativity and more flexible agreements. Our advice to landowners is that to maximise value, they adopt a creative approach, rather than relying on the mechanisms within a standard land agreement. This typically means taking a longer-term view of land promotion. Many major estates, corporates and local authorities see the benefit of agreeing reduced upfront land receipts on the basis that they share in longer term returns. In some cases they choose to remain actively involved in the creation of new developments, delaying the financial return on investment until the point at which the value has risen, while also maintaining a role in the evolution of the scheme – something that is proving popular with landed estates in particular.

Impact on landowners Land value capture combined with an increased cost of providing BNG would suggest that land would change hands at a lower price, to the detriment of landowners. However, BNG represents some benefits to landowners. For many, the principal impact is that of legacy: landowners who are selling land which borders their own estates will welcome well managed and attractive green spaces. Those with a social/ecological/environmental conscience will welcome the potential for the land to address climate change and protect or regenerate native species. Furthermore, with farming subsidies increasingly moving from production to environmental targets, this change sits well with farmers’ new objectives.

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Partner, London

Francis Truss

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Land Value Capture and the Impact of Biodiversity Net Gain

This ‘smart’ building technology not only reduces costs, but also improves the working environment for staff

A week later, the Environment Act made it a legal requirement for all new development to provide a minimum 10% biodiversity net gain (BNG).

For the north of England, the commitment to 'build back better' centred around the extension of HS2 from Birmingham to Leeds, via Sheffield. And so for the planning and development sector among many others, the cancellation (or at least significant postponement) of the Leeds leg of HS2 in November was a shock of almost pandemic proportions.

It was hoped that the Levelling Up White Paper would bring some pre-Christmas joy and so this further postponement, too, has been a disappointment.

In terms of meeting sustainability goals and housing targets, and of updating an outdated local transport system, immediate change is required. But change must also provide the long-term vision to replace the optimism that HS2 once brought, to encourage ongoing private sector investment in the north. Commitments to new projects, in place of HS2 are also much needed by way of compensation. This is what the Levelling Up White Paper must bring.

Change in direction It is hoped that the HS2 decision is the reason for the delay of the Levelling Up White Paper - that the Government is reconsidering the package of reforms that it is to present to its ‘red wall’ voters. From a planning and development perspective, we are now hoping for announcements on the future of the regional transport system, on revised plans for Leeds station and on how those areas which would have benefited significantly from HS2 can prosper in its absence. Bradford, which has a young working population would have received a huge boost from HS2 in the same way that the many towns to the west of London (such as Slough and Hayes) benefited from Crossrail. But Bradford’s hopes have been dashed, with nothing yet to replace them. In some respects, the loss of HS2 paradoxically brings some certainty: land at risk of CPO has the potential for development; masterplanners no longer have to factor in the impact of the train line; and distribution and logistics companies, if they choose to seek new premises in the north, will do so around road, rather than rail networks, at least in the short term. This though will present a concern for local authorities, which have almost universally declared a climate emergency and saw the switch from road to rail as a means of delivering on their sustainability goals.

Regeneration of brownfield sites The Levelling Up White Paper must also address brownfield redevelopment. When on 12 October the Government announced the distribution of £58 million as part of the Brownfield Land Release Fund, 26% of the allocations were in the South West, 25% in the South East, 15% in London and 11% in the East of England. The North East, Yorkshire and Humber and the North West were to receive just 4%, 4% and 2% respectively. And yet the north has some the best examples of brownfield regeneration in its highly successful conversions of former industrial complexes and buildings.

Conclusion

Public transport investment It is hoped that compensation will come in the form of improved rail connectivity between Bradford and Leeds, as with other towns. Those along the Trans Pennine route, such as Dewsbury, Huddersfield and Stalybridge, suffer from poor links into the cities.

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Partner, Leeds

Sarah Cox

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The Levelling Up White Paper

This ‘smart’ building technology not only reduces costs, but also improves the working environment for staff

For the development sector throughout this substantial region of the UK, the Levelling Up White Paper has the potential to bring about a very happy new year. We hope that the delay represents a review and recalculation which will genuinely level-up not just the north/south but the disparity within our region.

A passenger view from a high speed train that runs up and down the United Kingdom.

There are many reasons for optimism in the longer term, even if new variants of concern appear. Our ability to respond to rising infections has been transformed - we understand COVID significantly better, vaccines can be tweaked rapidly if required, better treatments are available, and we have upgraded our ability to rapidly revaccinate the population.

This imbalance, plus global issues such as energy pricing, is resulting in the re-emergence of inflation as a key feature of the economic outlook. CPI is already above 5% and could peak well above 6%, and the cost of living could well replace COVID as the top economic concern of 2022.

Local Nature Recovery will pay farmers to change their current practices and make space for nature, managing and creating wildlife habitats, adding trees and hedgerows, restoring peatland, wetlands and coastal habitats. Agreements will last seven years with the ability to add options and extra land during the agreement. Although designed for individual farmers, it will encourage collaboration with neighbours. It will be tested in 2023 and rolled out in 2024, but more detail is required, which should be released later this year.

The number of participants in these schemes remains to be seen, but farmers will need to plug the gap created with the end of BPS funding. It will mean farmers’ increasing collaboration with neighbours, and an increased emphasis on being paid to manage land, rather than pure production.

Under the ELMS proposals, farmers who wish to retire from the industry will have the option to receive a lump sum payment, subject to a cap of £100,000, a level which is doubtless too low for most. Indeed, the only farmers who will take advantage of the payment will be those who would be retiring anyway, and they will be unlikely to delay a sale of their farm to take advantage of the payment.

Many landowners have delayed environmental work through fear of acting too early and missing out on the potential income from natural capital/carbon capture/offsetting schemes. As clarity increases, we will see an increase in the uptake of these incentives, which have the potential to dramatically change the landscape of this country.

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