• Swindon & Wiltshire Property
• Tuesday December 19 2023
• Author Name: Peter Davison

Commercial property giant CBRE says it expects ‘nascent economic recovery’ in second half of 2024

Commercial real estate to be more attractive in 2024 around the country, with investment prospects set to improve as value declines have stopped in some sectors and slowed in others, according to new research from commercial property giant CBRE.

However, divergence in performance across property types is likely to persist in 2024 and obsolescence, particularly in older office and retail assets, will be a key challenge for the UK real estate market next year, according to Jennet Siebrits, head of research at CBRE.

“The high interest rate environment along with falling values has created a lack of viability for debt buyers and contributed to a thin market,” said Jennet.

“However, as debt costs fall, this should improve.

“Equity buyers are set to gain from discounted values, benefitting from favourable net total returns and as yields decompress further, the mismatch between buyers and sellers will close, with transaction activity increasing in 2024.”

“The fall in values and rise in financing costs since mid-2022 will reduce opportunities to profitably refurbish or repurpose older stock until market conditions improve,” he added.

In the residential property market, mortgage rollover poses the biggest risk to growth forecasts, with 850,000 fixed-rate mortgages due for renewal in 2024.

These mortgages will be impacted by higher rates at the point of refinance, which could lead to a fall in household incomes, reducing the ability to spend, resulting in lower-than-expected consumption, says CBRE.

Tom Morris, managing director, Midlands and South Region at CBRE, said: “Here in the South West, the supply and demand balance across the private rented sector is expected to worsen in 2024, further fuelling the need for quality build-to-rent initiatives.

“Similarly, the ongoing shortfall of university housing in cities such as Bristol and Bath will continue to drive a need for more purpose-built student accommodation (PBSA).

“In the office market, our research shows that creative industries are expected to seek more permanent office space solutions. Given Bristol’s thriving creative sector, we’re likely to see that pattern reflected here.”

CBRE says sustainability will continue to be a focus for the year ahead, with an accelerated transition to net zero across the industry.

There will be a period of price discovery as the industry improves its understanding of the cost of sustainability capital expenditures and how sustainable properties perform relative to less sustainable assets.

Furthermore, physical climate risks to buildings and infrastructure will be of growing importance to occupiers, investors and lenders and regulation and disclosure will begin to turn its focus to nature and biodiversity.