The solar eclipse, Freddos and UK real estate.

Like many, I was fascinated by the partial solar eclipse that happened in the UK earlier this week. It got me thinking back to the time of the last total solar eclipse in the UK, in August 1999, and how things had changed.

In the summer of 1999, there was a huge earthquake in Turkey leaving over 17,000 dead, the Scottish Parliament opened and Pete Sampras won the men's singles championship Wimbledon for the third successive year. A pint cost £1.94 compared to £5.50 now and a Freddo (the price of which I now know is an informal cost of living tracker) would have set you back 10p as opposed to 39p today. 

In the real estate world, there was a housing boom, with prices going up 8.1% year-on-year, stamp duty was a mere 2.5% and the buy-to-let strategy was just starting. We did not yet have a REIT regime — that only started in January 2007. Back then, offshore companies were often used to hold UK land, with investors taking advantage of the anonymity and favorable capital gains tax treatment afforded by certain jurisdictions. Both of these features have since been heavily diluted. There is non-resident capital gains tax ("NRCGT") and anti-avoidance legislation in place, as well as beneficial ownership disclosure obligations through the Register of Overseas Entities.

We were used to seeing longer leases with upward only rent reviews, allowing for a greater degree of predictability for landlords. Now the norm is for short leases, with flexibility the keyword.  In terms of sectors, in 1999, the high street and offices were top performers and logistical assets were viewed as low margin.  This has been turned on its head with data centers, last mile logistics and life science assets being considered the high-achieving sectors, whilst the retail sector faces the challenge of people buying a significant amount of their income online and the office sector deals with fundamental changes in working practices following the COVID-19 pandemic. As we approached the end of the last century, sustainability was not really a factor in asset valuation. Fast-forward twenty-seven years and ESG is a crucial factor when determining the attractiveness of a property. There has been a lot of change and that is without mentioning the biggest game changer of them all, Artificial Intelligence, which has the potential to transform all industries, not just real estate, in the next 10 years.

But whilst the deals have become more complex and overseas investors have played a growing role in UK property investment, there has been plenty in the real estate sector that has remained the same. As we headed into 2000, there was a flight to quality much like we have seen in recent times in relation to prime offices. Poor quality stock in the wrong location continues to struggle to attract interest. Also present back in the late 1990s was regional outperformance. That seems set to continue as the North of England chases growth through leveraging key fundamentals such as strong infrastructure and robust housing strategies. Real estate was, and still is, viewed as a safe investment at a time of economic uncertainty. Finally, real estate, although built on the concept of bricks and mortar, remains very much a people industry. It needs agents, developers, engineers, builders, planners, even lawyers, all working together to create wonderful places. 

The next partial solar eclipse (up to 45% coverage of the sun) will happen in August 2027, so don't bin those special glasses. Hopefully, after that I will be writing about how strongly the UK real estate sector has performed, how AI has changed how we operate for the better and how the price of Freddos has stabilised.