UK property still looks to Europe

Yet while the government seems set on a course of divergence, eschewing regulatory alignment with the EU single market, one area of the British economy appears to be converging with Europe: real estate. This is most obvious in the retail and residential sectors.

For years, UK retail was a safe bet for investors thanks to long leases and upward-only rent reviews. But UK consumers have embraced online shopping more readily than their continental counterparts.

This, plus complex and often unfair business rates and exorbitant parking fees, has hollowed out UK high streets. Many retail parks and shopping centres are also distressed, leading investors to consider alternative uses such as leisure or logistics.

Covid-19 has compounded UK retail’s woes, with lockdowns dramatically cutting footfall and pushing people who may not have shopped online before into the arms of brands like Ocado and Amazon.

Faced with the possibility of swathes of empty space, landlords such as Legal & General, Capco and Cadogan are embracing turnover-based rents – which are far more common on the continent – and shorter leases.

These sorts of arrangements will be crucial to the long-term success of physical retail, and many European countries have proved they are a viable way forward.

Meanwhile, the UK housing market is moving away from the Thatcherite ideal of a property-owning democracy into something more diverse and European.

The UK is moving away from the Thatcherite ideal of a property-owning democracy

A rise in private renting has led institutional investors to pile into the market. Pension funds and insurers are funding purpose-built private rented housing to secure long-term, steady income streams with defensive, counter-cyclical qualities to match their liabilities.

Institutional ownership of rental housing is more established in many European markets, where the deregulation and fragmentation that marks the UK PRS is practically non-existent.

With its love of houses, the UK once stood in stark contrast to its neighbours. According to Eurostat, in 2018, just under half of people in EU-27 countries lived in flats, while over 60% of Brits lived in semi-detached houses.

But again, we can see a creeping Europeanisation. Many of the new UK build-to-rent schemes are high-rise, city-centre flats.

Figures from the National Housebuilding Council show flats to be a growing part of UK housing supply; last year they represented 29% of new home registrations, the same proportion as detached houses.

The UK government’s recently announced planning reforms will see Britain adopt a more European-style, rules-based zonal planning system, with three land categories – growth, protection or renewal – designed to speed up development.

Of course, differences remain and compared with many European countries, the UK property market is incredibly globalised. And cities, whether in Britain or Europe, are united in their need to repurpose buildings – something MARK excels at – that have been rendered obsolete as coronavirus accelerates pre-existing structural changes.

However, it is not without irony that as Britain looks to its post-Brexit future, its property market will look a lot more European than before.

Josip Kardun is chief investment officer of MARK (formerly Meyer Bergman)