What might occur in the national investment market in 2024?

This time last year, our team of sector experts were hopeful of a more active market in 2023 – alas, with interest rates rising a further 1.75% during the first 8 months of the year, investment volumes slumped to their lowest level since 2012.

However, a “bounce” was felt in Q4 and with the BoE coming under pressure to lower interest rates later this year and with Swap Rates falling maybe 2024 will see investor sentiment improve.

We’ve consulted our team of national commercial investment agents not to gaze into their crystal balls, but to provide their on-the-ground insight into what trends will carry on from 2023 into the new year, and what therefore 2024 is likely to have in store for a range of commercial real estate sectors.

How would you describe 2023 in your sector in three words?

Industrial: & Logistics: ‘SoS‘- Shortage of Stock

Alternatives: Challenging but growing

Retail: Location, location, location

Offices: Year of repricing

Retail Warehousing: Lack of stock

Which one trend from 2023 will continue and which one will either evolve or come to an end?

Industrial: & Logistics

IOS – Industrial Open Storage and the weight of capital entering the sub-sector.

Alternatives

The importance of alternative investments for property portfolio diversification has grown year on year, accelerated by the pandemic and we expect that to continue in 2024 across all investor types.

Retail

Tenants are continuing to look to owner occupy their units if the opportunity arises. Secondary high street retail will continue to be repurposed to alternative uses and we may start to see green shoots of rental growth in prime high street locations.

Offices

Middle Eastern capital’s presence in the office market for assets secured against strong covenants with long income.

Retail Warehousing

Re-emergence of the out-of-town leisure sector as the effects of Covid are starting to be in operators’ rear mirror. Fashion Parks have long been out of favour in the out-of-town sector but with rebased rents and fashion operators such as Next, Primark, M&S, Frasers, JD Sports, TK Maxx all performing well in out-of-town locations then this trend may change.

Who will be buying in your sector in 2024 and why?

Industrial & Logistics

There is likely to be an increased inflow of foreign capital given the loosening of pricing and the attractive currency play. Many investors remain sitting on the fence waiting for interest rates to ease but all types of capital will re-engage as the year progresses.

Alternatives

Funds will continue to invest, looking for long index linked leases, diversification, and minimum void periods – helping in large with their portfolio weightings. Furthermore, the understanding of alternatives by the private investor has also increased and we expect to see even more new entrants this year.

Retail

Private investors, both UK and overseas, who are attracted by the high yields and largely rebased rents. Institutions may come back into the market selectively towards the end of the year for the very prime high street assets.

Offices

Prop Co’s / developers / private equity. The pricing correction for secondary assets has been greatest and is arguably now at a level to open up greater value-add / repositioning potential. With the prospect that we may also see Permitted Development Rights 2.0 in 2024, this opens the door for further opportunities, and we expect the value-add market to dominate transactions in 2024. Office to Student Accommodation and Office to Hotel conversions will also likely feature.

Retail Warehousing

Core capital seeking favourable pricing to the long-term average. There is lots of core plus/ value add capital waiting in the wings to see if secondary yields move out further, the same capital is also active in the leisure sector. Following a record year of transaction volumes in the foodstore sector it will remain attractive once again to investors and as the base rate falls, we expect to start to see yield compression as well.

Why will investors find your sector attractive in 2024?

Industrial: & Logistics

The occupational market remains robust and so investors will continue to buy into the rental growth story based on sound long term fundamentals, value-add or opportunistic approaches.

Alternatives

We expect investors to continue to be attracted by the income-producing potential of alternatives during times of continued volatility. Alternatives often offer longer leases with regular index-linked or fixed uplifts, as the operational sides of the business tend to track inflation. On the operational side, many of the subsectors look exciting and the fundamentals are improving – travellers are once again packing hotels, free government hours for nurseries are increasing and care home demand is growing. The improved performance outlook and investors’ ‘flight to safety’ stance will keep alternatives well and truly at the top of many investors’ wish lists for 2024.

Retail

Yields will remain relatively high and with borrowing costs forecast to reduce over the course of 2024 the returns look attractive. Also the possibility of rental growth in prime locations may appeal.

Offices

Capital values psf are at a level that alternative use value comes into play – this will broaden the investor pool enormously.

Retail Warehousing

Attractive risk v return profile. With a strong occupational market and covenants on offer in the out-of-town sector there is attractive income available in the sector and medium-term yield compression.  

Interested in more insights on the market?

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