The author of this article – working at a property consultancy – looks at the UK”s commercial market for brick-and-mortar assets and argues that signs are already in place that the sector is recovering, and why.
The following article examines the UK commercial real estate
investment market, and how, in the author’s view, there are signs
of an improvement following a tough period. The author is Ian
Lambert, investment partner at Hartnell Taylor
Cook, a property consultancy. The editors are pleased to
share these comments. The usual editorial disclaimers apply.
Email
tom.burroughes@wealthbriefing.com if you wish to
respond.
Last year’s slowdown in activity was frustrating for the
investment market. However, owing to diminished competition as
funds and property companies severely curtailed their investment
ambitions, cash-rich family offices are putting their heads above
the parapet and snapping up prime assets which they might
normally have had difficulty securing. The message nationwide is
that cash is king and the canny cash buyer can pick up some
bargains ahead of the wider investment market starting to invest
again.
Activity on the up
Despite a rocky 2023, investment activity across the commercial
property sector is on the up. 2023 resulted in a total deal
volume across the UK that was well below the 10-year average of
£53.4 billion ($67.6 billion). Figures for the fourth quarter,
however, began to show a more positive picture, seeing a 14 per
cent increase quarter-on-quarter, albeit still 15 per cent below
the average. However, this upward trajectory has followed into
2024, with activity and deals across the country picking up
despite a continued climate of geopolitical uncertainty, abetted
by easing inflationary pressures and interest rate cuts
potentially on the horizon.
A trigger
Whilst these growing numbers are currently green shoots of
positivity, they will likely spur further action down the line.
Creating a herd-like mentality, a group commitment and sense of
optimism provides the impetus required to kickstart an active
investment market. As investment in property becomes increasingly
attractive and deals continue to be completed, confidence is
building throughout the market, creating a domino effect of
sorts.
Price discovery’s influence
Determining how much properties were worth was difficult
throughout last year due to the unfavourable market conditions
causing a downturn in activity. In turn, sellers were reluctant
to offload properties and trade at significant discounts to
valuation and preferred to hold onto assets in the hope that they
might see a better price further down the line. In the same
vein, those wanting to buy may well have been waiting to see
prices come down. “No one wants to catch a falling knife” was the
worst phrase of 2023!
However, as the market has slightly improved; in Q1 2024 we
are seeing more transactions happening, making pricing
comparisons slightly more straightforward and boosting market
confidence.
ESG demands affecting sales
Environmental considerations continue to be a top priority and
there is a desire to provide best-in-class assets where possible,
as well as continuous improvements necessary to meet upcoming EPC
[energy performance certificate] regulation deadlines. Buyers are
reluctant to purchase second-hand buildings where significant
additional refurbishment costs are required to bring the
properties in line with tenant requirements and energy
performance certificates of B or above. Many older office
buildings are now being repurposed altogether for alternative
use, often residential or student accommodation or, if
occupying a decent site, being demolished for industrial
development.
Prices have bottomed out
Ultimately, prices have bottomed out and the savvy buyer should
be acting now to take advantage of uncertainty before the upturn.
There are certainly some good deals to be found but as borrowing
rates edge down, geared buyers will re-enter the market,
providing competition. We are already seeing vendors withdrawing
sales previously under offer, as they believe they are now under
selling and can remarket later in the year at a better price.
Delays in spending will only mean that buyers find themselves
with increased competition for stock as the investment outlook
continues on its upward trajectory for the remainder of 2024.
In summary, investors can take comfort in the knowledge that
following a below average 2023, owing to a variety of economic
factors, the waters are beginning to steady and those wanting to
buy should soon find their footing on more familiar ground.
Optimism crept in at the end of last year and is now beginning to
build in the market, which, despite ongoing wider
geopolitical concerns has now bottomed out with the promise of
easing inflation and a reduction in interest rates. Whilst we are
set to see more stock come to market – in particular, from local
authorities where financial hardships are forcing them to
consider selling large segments of their property portfolios –
buyers seeking to invest should do so sooner rather than
later.