Guest Blog: Identifying Emerging Property Sectors
By Tom Jansons, development manager at Jansons Property
The Covid pandemic had an influence over every industry, sending some into an almost paralysis until adaptations could be made to suit new dynamics, while others such as the health and tech sectors struggled to keep up with the demand it posed. As a result of increased problem-solving efforts to tackle this, the property industry has seen new sectors emerging, and as with any investment, it is important to identify which of these will be able to deliver long term results.
For instance, when organisations write-off concepts such as web-based engagement or data-informed management as a fad instead of a growing trend in the market, company evolution is halted. Likewise, if passing fads are approached as trends, businesses risk crying wolf on organisational change and throwing money at a fruitless investment in the long term.
Generally speaking, the sectors which seem to stick are the ones that were developing and finding their feet before the pandemic. One of the easiest ways to differentiate between what sectors will become trends in the market and which are passing fads is to pay attention to how long the concept has been on the radar. As a rule of thumb, trends tend to come about slowly and quietly develop before bursting into popularity, whereas fads shoot onto the scene and disappear just as quickly.
As the UK emerges from the pandemic, the sectors to watch are ones such as datacentres and life sciences that were in the pipeline before the pandemic hit but were propelled by the crisis. Furthermore, although these sectors are now maturing, they are still relevant and growing sectors in the market. We will always need a growing amount of data storage, for example, therefore the data centre sector is one that is constantly evolving. With the current rate of digital expansion, it is clear that data centres will be required for the foreseeable future. The near constant expansion of technology means that this sector is here to stay and so is the demand for land to accommodate them.
However, the pandemic also caused a spike in emerging sectors, as we raced to address a plethora of new problems. An example of this is the emergence of ‘dark kitchens’ as a sector in the real estate world. As the pandemic gave rise to a boom in the food delivery industry, ‘dark kitchens’ were taking leases in more remote areas so that chains could easily extend their delivery reach as the nation was confined to their homes and missed dining out. Will this be a long-term sector? The jury is out.
For those interested in attracting investment from the property market, you will need to demonstrate the longevity of a trend or emerging sector. Is this trend something people will need and be able to access in the long term? Life sciences is a sector which continues to require high quality sites and therefore attracts record rents and yields. Once again, this is a sector which was emerging before the pandemic and has been spurred on by the impact of the pandemic. The requirement for vaccines has put the sector in the limelight but this has been an important part of the property market for many years now.
Ultimately sectors emerge because there’s a demand for them and if you can study the behaviours and spending patterns of the wider population, it will become clear what is in demand so staying on top of financial news and consumer patterns is essential. For example, the industrial market is booming at the moment, achieving record rents and land values, and this market is supported by strong fundamentals. A very simplified way of looking at the rise of the industrial sector is:
More people buying online = more storage required for goods = more demand for industrial space = lack of supply of industrial units = higher rents and land values.
This trend seems obvious now but 10 years ago it was not so apparent. An observant market participant may have spotted this future trend and purchased more industrial sites as part of their portfolio. If they did then they would be very wealthy and successful today!
Whilst the pandemic brought about some new trends, the trends that are expected to stick are the ones which were on their way to fruition before the pandemic hit. In these cases, the pandemic has acted as a catalyst for growth, whereas the fads that we expect to deplete are ones which spawned from the pandemic- seemingly fixing short term problems. One thing is certain, and that is the property industry remains a dynamic market. To stay ahead in this industry, it’s important to keep abreast of emerging trends and understanding the ones to watch and the ones to let go.