What is hindering your market at the moment?

Ultimately, the main hindrance must be lack of market liquidity. Without transactions, there is little evidence upon which to base pricing levels. Without price transparency, vendors do not know where to pitch the product and purchasers fear overpaying. Those that do come to market are under duress, hence the terms of sale are not necessarily indicative of where the market is. Given that the market is not as leveraged in the past, there is no real incentive for owners to sell and so the stalemate goes on. This is especially true of the office market where all these forces are aggravated about uncertainty with respect to future working patterns and ESG regulation.

What opportunities are you seeing in your market at the moment?

Given the investment logjam and the limited supply of top-quality space, we are seeing growing interest by owner operators in ‘sale and leasebacks’ to unlock capital for re-investment into their businesses, without surrendering occupation. Debt for refinance is also offering interesting returns. Banks are still risk averse, so senior debt opportunities at interesting margins for private investors is available with reasonable returns. The main opportunity though must be partnering with asset managers to buy value-add and core plus assets repositioning and then returning to the market. Development opportunities can offer good returns, but this is a very different proposition to trading good quality standing assets.

What’s the biggest change you have seen in your sector throughout your career?

I have been around quite a while and remember a time when deals were agreed in the pub and confirmed via fax. The biggest changes I've witnessed are the shift in the client base, the emergence of operational capital markets, and advancements in technology.

When I began working in property investment, there were significantly more funds, far fewer overseas investors, and only a limited number of property companies of a significant size. In recent years, institutional clients have consolidated, and overseas investors, through private real estate funds, have become the major buyers for the best trophy assets in the capital and major regional centres.

Investment into beds through the private rented sector (PRS) and student accommodation together with healthcare now offers an alternative to the conventional markets that once dominated the investment landscape when I started.

Changes in technology enable instant access to unlimited amounts of information and the emergence of AI is likely to lead to further improvements in analysis and reporting. However, property is a people business, and in my opinion, no amount of technological development is likely to replace the benefits advantages of face-to-face interaction in our marketplace. ​

What has surprised you the most about your sector post pandemic?

The changes in office space occupancy post-post pandemic did not come as a surprise but the fact that this shift appears to have become the norm has been unexpected. The emergence of flexible and hybrid working is especially beneficial for those who require greater flexibility in their work routines, such as those balancing additional responsibilities such as school runs.

The evolution in office occupancy patterns has broadened out the potential workforce. However, the reduced presence in the office throughout the week reduces social interaction and limits the opportunities, particularly the ability for young professionals to learn some of the essential softer skills they would have picked up by working side-by-side with other, more senior members of their teams.

How would you summarise/characterise your sector over the past 12-18 months?

The investment market is yet to recover fully from the political and economic turmoil of the last few years, especially the impact of rising interest rates. Anticipation of a rate cut over the first half of 2024 buoyed sentiment, but this resulted in only a marginal year-on-year increase in activity in H1 2024. Evidence of renewed interest in real estate from well-funded international investors is abundant, as has been their reticence in making a move. Political stability after a snap election, and the first Bank Rate cut in August 2024, coming at the height of the annual holiday season, means that any obvious surge in activity from pent-up demand is not expected until the last few weeks of Q3 2024. ​

While evidence of office deals are already emerging in London, activity across the rest of the UK is less ubiquitous given the shortage of investable standing stock. This is also apparent in the industrial and logistics sector. Interest in the retail sector is returning after several years of malaise, especially retail warehouses, as well as in good quality high street stock in regional cities and stronger market towns. ​ The BTR sector was the last to respond to the market slowdown and probably will be among the first to recover strongly.

With inflation near target, interest/debt costs now falling, and the economy on track to achieve a soft landing, there is reason for optimism. The traditional year-end investment surge may materialise, supported by improving transaction volumes and greater price discovery, although it may be at a more measured pace than usual, falling somewhat short of year-end frenzy.

 

​ What is hindering your market at the moment?

Ultimately, the main hindrance must be lack of market liquidity. Without transactions, there is little evidence upon which to base pricing levels. Without price transparency, vendors do not know where to pitch the product and purchasers fear overpaying. Those that do come to market are under duress, hence the terms of sale are not necessarily indicative of where the market is. Given that the market is not as leveraged in the past, there is no real incentive for owners to sell and so the stalemate goes on. This is especially true of the office market where all these forces are aggravated about uncertainty with respect to future working patterns and ESG regulation.

​ What opportunities are you seeing in your market at the moment?

Given the investment logjam and the limited supply of top-quality space, we are seeing growing interest by owner operators in ‘sale and leasebacks’ to unlock capital for re-investment into their businesses, without surrendering occupation. Debt for refinance is also offering interesting returns. Banks are still risk averse, so senior debt opportunities at interesting margins for private investors is available with reasonable returns. The main opportunity though must be partnering with asset managers to buy value-add and core plus assets repositioning and then returning to the market. Development opportunities can offer good returns, but this is a very different proposition to trading good quality standing assets.

What’s the biggest change you have seen in your sector throughout your career?

I have been around quite a while and remember a time when deals were agreed in the pub and confirmed via fax. The biggest changes I've witnessed are the shift in the client base, the emergence of operational capital markets, and advancements in technology.

When I began working in property investment, there were significantly more funds, far fewer overseas investors, and only a limited number of property companies of a significant size. In recent years, institutional clients have consolidated and overseas investors, through private real estate funds, have become the major buyers for the best trophy assets in the capital and major regional centres. ​ ​

Investment into beds through the private rented sector (PRS) and student accommodation together with healthcare now offers an alternative to the conventional markets that once dominated the investment landscape when I started.

Changes in technology enable instant access to unlimited amounts of information and the emergence of AI is likely to lead to further improvements in analysis and reporting. However, property is a people business, and in my opinion, no amount of technological development is likely to replace the benefits advantages of face-to-face interaction in our marketplace. ​

What has surprised you the most about your sector post pandemic?

The changes in office space occupancy post-post pandemic did not come as a surprise but the fact that this shift appears to have become the norm has been unexpected. The emergence of flexible and hybrid working is especially beneficial for those who require greater flexibility in their work routines, such as those balancing additional responsibilities such as school runs.

The evolution in office occupancy patterns has broadened out the potential workforce. However, the reduced presence in the office throughout the week reduces social interaction and limits the opportunities, particularly the ability for young professionals to learn some of the essential softer skills they would have picked up by working side-by-side with other, more senior members of their teams.

How would you summarise/characterise your sector over the past 12-18 months?

The investment market is yet to recover fully from the political and economic turmoil of the last few years, especially the impact of rising interest rates. Anticipation of a rate cut over the first half of 2024 buoyed sentiment, but this resulted in only a marginal year-on-year increase in activity in H1 2024. Evidence of renewed interest in real estate from well-funded international investors is abundant, as has been their reticence in making a move. Political stability after a snap election, and the first Bank Rate cut in August 2024, coming at the height of the annual holiday season, means that any obvious surge in activity from pent-up demand is not expected until the last few weeks of Q3 2024. ​

While evidence of office deals are already emerging in London, activity across the rest of the UK is less ubiquitous given the shortage of investable standing stock. This is also apparent in the industrial and logistics sector. Interest in the retail sector is returning after several years of malaise, especially retail warehouses, as well as in good quality high street stock in regional cities and stronger market towns. ​ The BTR sector was the last to respond to the market slowdown and probably will be among the first to recover strongly.

With inflation near target, interest/debt costs now falling, and the economy on track to achieve a soft landing, there is reason for optimism. The traditional year-end investment surge may materialise, supported by transaction volumes and greater price discovery, although it may be at a more measured pace than usual, falling somewhat short of year-end frenzy.

 

 

What has been the best piece of advice that you’ve been given during your career?

The best piece of advice I received was impressed on me by my former boss at Healey and Baker when I was in the northern shops department based in Hanover Square, London. He insisted that we were all experts in our designated regions - in my case, the North West from Preston to Carlisle. This was before the days of Google maps, so he encouraged us all to be on patch walking the streets and speaking with local agents to stay informed about developments in our areas. By doing so, we ensured that we were ahead of our London-based competitors and were able to provide our clients with early access to information and opportunities before other retailers caught on.

As he said, he was responsible to the partnership, and we were responsible to him. It was a gruelling lesson to learn but as graduates, we quickly became proficient experts in our respective areas and useful assets to the team. Being knowledgeable is crucial when offering client’s good advice, and this only comes with a critical awareness of factors influencing your markets and high levels of due diligence.

What could have the biggest impact on the property industry in the next 10 years?

Probably AI. I feel that its potential is far reaching and will impact the way we work in the future, although we don’t know how exactly. For agency departments, it's the possibility of it being able to match buyers with sellers and landlords with tenants; produce market reports; run cashflows and generate schedules of comparable, however, it can’t undertake physical inspections. For that reason, I don’t see it being capable of entirely replicating the role that agents and advisors provide.

Furthermore, the real estate market has always been driven by relationships and personal communication. AI cannot ‘feel’ property in the way that clients and agents do.

Across capital markets, there will always be demand from local and/regional investors however, for larger assets, global operators compete with UK institutions. As the number of these traditional funds dwindle, major overseas private equity funds will continue to grow and dominate the marketplace. 

 

What has been the best piece of advice that you’ve been given during your career?

The best piece of advice I received was impressed on me by my former boss at Healey and Baker when I was in the northern shops department based in Hanover Square, London. He insisted that we were all experts in our designated regions - in my case, the North West from Preston to Carlisle. This was before the days of Google maps, so he encouraged us all to be on patch walking the streets and speaking with local agents to stay informed about developments in our areas. By doing so, we ensured that we were ahead of our London-based competitors and were able to provide our clients with early access to information and opportunities before other retailers caught on.

As he said, he was responsible to the partnership, and we were responsible to him. It was a gruelling lesson to learn but as graduates, we quickly became proficient experts in our respective areas and useful assets to the team. Being knowledgeable is crucial when offering client’s good advice, and this only comes with a critical awareness of factors influencing your markets and high levels of due diligence.

What could have the biggest impact on the property industry in the next 10 years?

Probably AI. I feel that its potential is far reaching and will impact the way we work in the future, although we don’t know how exactly. For agency departments, it's the possibility of it being able to match buyers with sellers and landlords with tenants; produce market reports; run cashflows and generate schedules of comparable, however, it can’t undertake physical inspections. For that reason, I don’t see it being capable of entirely replicating the role that agents and advisors provide.

Furthermore, the real estate market has always been driven by relationships and personal communication. AI cannot ‘feel’ property in the way that clients and agents do.

Across capital markets, there will always be demand from local and/regional investors however, for larger assets, global operators compete with UK institutions. As the number of these traditional funds dwindle, major overseas private equity funds will continue to grow and dominate the marketplace. 

The changing demographic within the UK has resulted in a situation where, for the first time, there are more people of pensionable age than there are children under the age of sixteen. This, coupled with the aging workforce in the construction industry, both within the contracting and consultancy markets, means that it is an alarming time for the industry. Satisfying labour workforces and recruitment demands has become a very real and pertinent issue for both contractors and consultancies.

Recruiting people into the industry is not a new challenge, but the changing demographic of the country is exacerbating the problem, requiring immediate attention. ​

Challenges caused by the construction skills shortage

It is essential to view these challenges within the broader context of the changing modern world, including increased flexible working, EU worker policy, the implementation of modern construction methods, and the efficiencies being driven through these technologies.

However, in the short to medium term, the aging workforce is straining the labour supply, leading to increasing labour costs. Wages have risen by 6% from a shortage of skilled tradespeople.

This is putting upward pressure on outturn construction costs as clients and developers strive to make their schemes viable. ​ Contractors are grappling with inflation, supply chain disruption, and a diminishing supply of workers to choose from as costs increase. Some contractors have even been forced to cease trading due to these challenges. All this has been too much for some contractors and we have seen some notable companies cease trading.

In terms of growth, the UK will look to construction to kickstart the economy in Q3 2023 and beyond. However, the drain of resources will put sustained growth at risk and make it difficult to meet the aforementioned numbers over the next few years.

Construction has historically leaned on workers from the European Union to satisfy this demand but according to the ONS, between 2020 and 2017 there was a 42% decline in the number of EU workers, compared to just a 4% drop from that of UK workers.

It remains to be seen what the effect of the ‘Back to Work’ budget will have on the industry after the government has relaxed migration requirements for key workers and whether this will mitigate some of this decline.

What are some of the schemes trying to help?

The government is trying to do its bit by the introduction of schemes to flood the younger end of the industry with the next generation. One such initiative is the introduction of the T Level in construction. This new technical qualification can be pursued after GCSEs and is the equivalent of 3 A Levels. Schemes like this can be used in collaboration with companies to meet their resourcing requirements and prepare the apprentices for the workplace. The courses are two years long and include nine weeks minimum working with an employer as an industry placement.

Although similar to apprenticeships, T levels will be more classroom-based, and give young people a route to academic achievement in a technical role.

In addition to the T level, there is the Construction Skills Fund, funded by the CITB, which aims to set up training hubs across the country. The funding supports live projects, providing to onsite experience to nearly 20,000 participants. Major contractors Wilmott Dixon, Balfour Beatty, and Morgan Sindall are just some of the major players in this scheme and have directly hired individuals for various roles.

Opportunities to help mitigate the skills shortage ​

The skills shortage is also impacting the consultancy sector of the industry. There is still a large proportion of the workforce that is aging, and the industry needs to do more to attract young talent.

The consultancy workforce has still seen the effects of Brexit and Covid 19; the exodus of EU workers and ‘big resignation’ of the older workforce after the pandemic. This is compounded by the globalisation of the construction industry and the attractiveness of international markets such as Australia, New Zealand, and USA in drawing talent away from UK consultants.

To address this, the Colliers Bristol Project and Building Consultancy team are actively contributing to rebalancing the scales by having over 25% of the team composed of apprentices. Two of them are pursuing their education at the University College of Estate Management, while the other two are enrolled in the local University of the West of England. ​

Additionally, there are a further two apprentices within the Bristol office that are part of the larger Colliers ‘Emerging Talent’ programme’. ​

Applicants are being encouraged for the next intake in 2024 and applications will open in autumn 2024.

In conclusion, there is a growing recognition within the industry of the challenges we currently face, particularly in the short to medium term, concerning the skills shortage. Initiatives like the government's T level and CITB Construction Skills Fund serve as positive starting points. However, it is now the responsibility of companies to drive their own programs, such as Colliers' Emerging Talent, to address these challenges.

The industry must adopt a cohesive and collaborative approach to: Attract skilled workers already working elsewhere in the industry

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The changing demographic within the UK has resulted in a situation where, for the first time, there are more people of pensionable age than there are children under the age of 16. This, coupled with the aging workforce in the construction industry, both within the contracting and consultancy markets, means that it is an alarming time for the industry. Satisfying labour workforces and recruitment demands has become a very real and pertinent issue for both contractors and consultancies.

These are the numbers that the UK construction industry is faced with currently.

Recruiting people into the industry is not a new challenge, but the changing demographic of the country is exacerbating the problem, requiring immediate attention. ​

Challenges caused by the construction skills shortage

It is essential to view these challenges within the broader context of the changing modern world, including increased flexible working, EU worker policy, the implementation of modern construction methods, and the efficiencies being driven through these technologies.

However, in the short to medium term, the aging workforce is straining the labour supply, leading to increasing labour costs. Wages have risen by six per cent due to a shortage of skilled tradespeople.

This is putting upward pressure on outturn construction costs as clients and developers strive to make their schemes viable. ​ Contractors are grappling with inflation, supply chain disruption, and a diminishing supply of workers to choose from as costs increase. Some contractors have even been forced to cease trading due to these challenges. All this has been too much for some contractors and we have seen some notable companies cease trading.

In terms of growth, the UK will look to construction to kickstart the economy in Q3 2023 and beyond. However, the drain of resources will put sustained growth at risk and make it difficult to meet the aforementioned numbers over the next few years. ​

Construction has historically leaned on workers from the European Union to satisfy this demand but according to the ONS, between 2017 and 2020 there was a 42 per cent decline in the number of EU workers, compared to just a four per cent drop from that of UK workers.

It remains to be seen what the effect of the ‘Back to Work’ budget will have on the industry after the government has relaxed migration requirements for key workers and whether this will mitigate some of this decline.

 

What are some of the schemes trying to help?

The government is trying to do its bit by the introduction of schemes to flood the younger end of the industry with the next generation. One such initiative is the introduction of the T Level in construction. This new technical qualification can be pursued after GCSEs and is the equivalent of three A Levels. Schemes like this can be used in collaboration with companies to meet their resourcing requirements and prepare the apprentices for the workplace. The courses are two years long and include nine weeks minimum working with an employer as an industry placement.

Although similar to apprenticeships, T levels will be more classroom-based, and give young people a route to academic achievement in a technical role.

In addition to the T level, there is the Construction Skills Fund, funded by the CITB, which aims to set up training hubs across the country. The funding supports live projects, providing to onsite experience to nearly 20,000 participants. Major contractors Wilmott Dixon, Balfour Beatty, and Morgan Sindall are just some of the major players in this scheme and have directly hired individuals for various roles.

Opportunities to help mitigate the skills shortage ​

The skills shortage is also impacting the consultancy section of the industry. There is still a large proportion of the workforce that is aging, and the industry needs to do more to attract young talent.

The consultancy workforce has also seen the effects of Brexit and Covid 19; the exodus of EU workers and ‘big resignation’ of the older workforce after the pandemic. This is compounded by the globalisation of the construction industry and the attractiveness of international markets such as Australia, New Zealand, and USA in drawing talent away from UK consultants.

To address this, the Colliers Bristol Project & Building Consultancy team are actively contributing to rebalancing the scales by having more than 25 per cent ​ of the team composed of apprentices. Two of them are pursuing their education at the University College of Estate Management, while the other two are enrolled in the local University of the West of England. ​

Additionally, there are a further two apprentices within the Bristol office that are part of the larger Colliers Emerging Talent programme. ​

Applicants are being encouraged for the next intake and applications will open in autumn 2024.

In conclusion, there is a growing recognition within the industry of the challenges we currently face, particularly in the short to medium term, concerning the skills shortage. Initiatives like the government's T level and CITB Construction Skills Fund serve as positive starting points. However, it is now the responsibility of companies to drive their own programs, such as Colliers' Emerging Talent, to address these challenges.

The industry must adopt a cohesive and collaborative approach to:

Attract skilled workers​ alreadyworking else where in the industry

Attract people​ back to the industry that have now left

Shortening qualification periods​ through intense training​ to meet demand quicker

Improving​ the retention of staff​ within the industry

Striving to increase productivity​ through innovation​

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Alex Vacher​
Director
Cost Management alex.vacher@colliers.com

Alex is ​ Director and Chartered Quantity Surveyor with over 10 years of industry experience in Cost Management and Quantity Surveying.

Alex is passionate about delivering excellent commercial advice for our clients for them to obtain best value. His focus is on how he can apply commercial acumen to add value for our clients through all stages of the project.

As the head of the Cost Management team at our Bristol office, Alex assumes the responsibility of leading a highly skilled and dedicated team, ensuring the delivery of outstanding results for our esteemed clientele.

 

Alex Vacher​
Director | Cost Management

Alex is ​ director and Chartered Quantity Surveyor with over 10 years of industry experience in Cost Management and Quantity Surveying.

Alex is passionate about delivering excellent commercial advice for our clients for them to obtain best value. His focus is on how he can apply commercial acumen to add value for our clients through all stages of the project.

As the head of the Cost Management team at our Bristol office, Alex assumes the responsibility of leading a highly skilled and dedicated team, ensuring the delivery of outstanding results for our esteemed clientele.