Innovation is key to future growth plans
MARKET BRIEFING Scott Henderson on the huge challenges the sector faces in a post-pandemic world
It’s no exaggeration to say the Covid-19 pandemic and its resulting lockdown will leave a lasting legacy across the UK economy. It is certainly having a profound impact on the commercial property sector, where changed working practices that were imposed during lockdown are leading many tenants to radically rethink their office requirements going forward.
A survey released at the end of last month by the Royal Institute of Chartered Surveyors not only showed a huge decline in tenant demand for retail and office space – down by 86 per cent and 79 per cent, respectively – but also that 93 per cent of respondents anticipate their businesses will scale back their space requirements over the next two years.
Given these sentiments, it’s not surprising that John Lewis, which has said it is planning to close 50 stores, has announced it is now exploring the option of turning its surplus retail space into affordable housing.
This innovative decision is no doubt driven by the growing popularity of online shopping, which dramatically accelerated through five months of lockdown.
The plans being considered by John Lewis chime with a recent report by the Social Market Foundation thinktank, which has called on the government to turn declining shopping districts into residential hubs. It claims that the decline of traditional high street shopping – a longerterm trend which has been escalated by Covid-19 – is inevitable. Rather than trying to revive these areas, it says more public resources should be committed to creating “new and more beneficial uses” for town centre sites.
The projected decline in demand for commercial property space coincides with a significant rise in demand for residential property.
This year’s BBC Briefing on housing reported that homelessness is now affecting an estimated 140,000 families, while more than one million UK households are on council housing waiting lists.
Meanwhile, it also reported that the number of 20 to 34-year-olds still living at home has risen to 27 per cent, an increase of more than a million people within that age bracket in the past two decades.
As the commercial property sector faces huge challenges in a post-pandemic world, all of these factors seem to present an opportunity going forward where creativity and innovation will be required.
Some projects to build new commercial property assets may need to be reconsidered, while existing assets might be better utilised as residential properties, where converting them for this use is possible.
Pressure from groups such as the Social Market Foundation may lead to further government investment in this process, and there are currently a number of innovative projects under way which are examining how to overcome the challenges of converting commercial property for residential use.
The positive news for those in both the commercial property and construction sectors, which will have the task of making this transition happen, is that there are already generous measures available through grants and tax incentives to support the innovation required.
Innovateuk has a wide range of grants available to encourage innovation across UK industry – including building, design and construction – such as the Sustainable Innovation Fund, aimed at helping all sectors recover, grow and create new opportunities in the aftermath of the global health pandemic. Similarly, the Home Building Fund provides smaller loans for innovative housing solutions.
Research and development (R&D) tax relief, introduced by the UK government in 2000, is one such measure, offering companies up to 33p for every pound spent on qualifying R&D activities.
In general, projects that will qualify for this rebate are those which look beyond the bounds of current knowledge, or those which involve experimenting or prototyping.
Qualifying projects have included those which look at developing new or improved modular construction techniques or the development of enhanced building materials.
In some cases, this could cover research focused on an ideal substitute of one material for another more appropriate one, such as using concrete made from recycled fly-ash.
Similarly, structural engineering projects aimed at extending the application of existing materials, including one which explored new designs to potentially enable wood buildings to be increased from their current limit of six storeys to 20, have also qualified for significant tax rebates through the scheme.
Other R&D tax relief qualifying projects included those looking at improved energy efficiency, more effective acoustic dampening and insulation.
Companies investing in these change of use projects may also qualify for capital allowances incentives.
There are also very generous incentives supporting the treatment and removal of contaminants, such as asbestos, providing claimants with up to 150 per cent tax relief. Companies considering such projects can usually maximise the potential tax benefits with the support of a specialist adviser.
Additionally, management students involved in the Construction Innovation Scholars programme at Edinburgh’s Napier University can undertake industrybased research projects. This is another potential support option for local companies requiring additional resources to accelerate an innovation project.
These support measures provide reassurance to the commercial property sector as it faces significant upheaval and may need help in addressing declining demand.
Along with R&D tax relief, they will play a key role in helping those at the heart of the sector seize the opportunity to convert existing commercial property assets to help overcome housing shortages across the UK.
Scott Henderson is chief executive of innovation advisers ABGI-UK
“Support measures provide re assurance to the sector as it faces significant upheaval and may need help in addressing declining demand”