The UK commercial property market is showing promising signs for 2024, with Savills, a global real estate advisor, forecasting significant returns across various sectors. Here’s a breakdown of what potential investors and stakeholders can expect in the coming year.
Booming Sectors – Where to Invest?
Savills predicts that eight different real estate asset classes will deliver annualised returns exceeding 8% between 2024 and 2028. This robust outlook includes sectors like buy-to-let properties in the North West, industrial spaces, and retail warehouses in London, which are expected to yield returns between 8.5% and 9.2%.
The Rise of Commercial Properties
Commercial properties are currently at a low point in their investment cycle, making them an attractive option for buyers. Retail, industrial, and office spaces are seen as particularly lucrative, with prices considered “comparatively cheap.” Savills emphasises the potential for medium-term capital growth, especially in parts of the retail market where rents and rates have been recalibrated.
Focus on Prime and Green Office Spaces
The UK office market had a mixed performance last year, but 2024 looks more promising. Factors such as cooling inflation, decreasing borrowing costs, and positive rental growth prospects are making certain development schemes more appealing, particularly those in prime and environmentally friendly office spaces.
Trend Analysis for 2024
Savills suggests a shift in investment strategies for the year. Rather than making broad sector-based decisions, investors are advised to focus on specific assets. This approach is particularly relevant for prime and green office spaces, which continue to suffer from undersupply and are likely to drive above-average rental growth.
Despite not expecting a surge in retail investment volumes, Savills foresees some hardening of prime yields in certain sectors and locations. Logistics and life-sciences sectors are also highlighted as attractive investment options due to their combination of high demand, limited supply, and strong rental growth prospects.
Savills’ Top Investment Picks
- Strategic Sheds: Investors are advised to target well-located logistics projects where values have dropped significantly since 2021. The expectation is to buy in 2024 and sell when the market peaks in 2026.
- Core Offices as Value-Add Investments: Offices with high yields and strong rental growth prospects are seen as temporary opportunities for value-add returns.
- Essential Retail: Foodstores and neighborhood-focused retail are currently undervalued. Population growth and limited stock availability support the strategy of investing in these segments for income-focused returns.
Residential Sector Challenges and Opportunities
The residential sector faced headwinds in 2023, including mortgage market turbulence and regulatory changes. However, with inflation expected to stabilise, Savills anticipates a reduction in financial disturbances. The firm predicts an 18.1% growth in rents by 2028, highlighting significant opportunities, especially for debt-independent landlords and those with properties in regions like the North West.
The Role of Institutional Landlords
Private rented sector difficulties are expected to boost the roles of built-to-rent and purpose-built student accommodations. These segments are increasingly becoming integral parts of the UK property landscape.
Farmland and Forestry
Savills underscores the importance of farmland in meeting societal challenges, including environmental goals. Prime arable land remains in demand, especially those with resilient water sources. Similarly, the UK forestry market, despite slowing down in 2023, continues to offer substantial investment opportunities as the country strives towards its net-zero emissions targets.
Political Uncertainty
Richard Merryweather, Savills’ joint head of UK investment, acknowledges the potential impact of the UK’s 2024 election on investor confidence. However, he notes that while transactional activity usually dips in the pre-election period, it typically recovers within six months post-election. Merryweather remains optimistic about the property and land investment sectors, especially given the growing focus on food security and carbon reduction.
In conclusion, Savills’ analysis for 2024 presents a diverse range of investment opportunities in the UK property market, with a shift towards more strategic, asset-specific decisions. Despite some political uncertainty, the overall outlook is positive, offering promising returns for savvy investors.