The UK property market is beginning to see a glimmer of hope as sentiments among lenders and investors improve, according to the latest findings from global real estate services provider, Savills. At their 36th Financing Property presentation, insights revealed a marked increase in confidence from the previous year, especially in key sectors such as residential development and logistics.
Nick Harris, head of UK and cross-border valuation at Savills, pointed out the renewed interest in specific property sectors. “There’s a noticeable boost in positivity, particularly around the living sectors, residential developments, and prime logistics,” he said. This shift suggests that key players in the London lender and investor community are finding more common ground in their market predictions, easing the discovery and agreement on property prices.
Challenges Remain Despite Positivity
Despite the optimistic tone, the property market still faces significant hurdles. The total assets traded at the close of 2023 amounted to about £40 billion, which is considerably lower than historical averages. The first quarter of 2024 didn’t bring much relief, marking a 12-year low for the period. However, Savills remains hopeful that market activity will pick up as the year progresses, bolstered by some high-profile transactions.
Lending and Investment Trends
In terms of financing, the environment appears tough. The amount of new loans originated was the lowest since 2012, standing at approximately £32.6 billion—down by a third from 2022. According to the recent Bayes survey, most of this activity was concentrated on refinancing, indicating that many lenders are now collaborating with borrowers to restructure existing loans.
Harris highlighted a critical issue: “As we proceed, the gap between what borrowers need and what lenders can provide could pose significant challenges, especially with higher borrowing costs and declining values in many sub-sectors.”
Sector-Specific Insights and Predictions
Mat Oakley, head of commercial research at Savills, noted that while the UK investment volume has rebounded from its low in the third quarter of 2023, the overall investment activity remains subdued. He predicts, however, that distressed sales may peak in the coming years, similar to patterns observed after the Great Financial Crisis. “We expect quicker recovery in sectors like retail warehouses, industrials, and hotels as yields begin to harden,” Oakley added.
On the pricing front, there’s still a cautious approach until trading volumes return to normal. Nevertheless, Savills anticipates that many prime sectors in the UK are nearing or have reached their price floor, with overall pricing approximately 25% lower than in June 2022.
Residential Market Dynamics
From a residential viewpoint, the market dynamics have notably shifted post-pandemic. Commuter locations are now outperforming rural areas, a reversal of the trends seen during the pandemic. In London, flats are seeing better performance than houses. Additionally, UK house prices are projected to increase by 21.6% by 2028. The build-to-rent sector remains strong, with £4.5 billion invested in 2023, marking the second-highest investment level on record.
Emily Williams, director in Savills residential research team, expressed optimism about the housing market’s resilience. “With anticipated rate cuts and a brighter economic outlook, we see a solid path for house price growth,” she concluded.