CBRE predicts property market recovery in 2024

CBRE predicts property market recovery in 2024

Chris Dougray

CBRE has forecast a nascent economic recovery in the latter half of 2024, with a more robust rebound expected in 2025, according to its UK Real Estate Market Outlook 2024.

This optimistic outlook is bolstered by the Bank of England’s anticipated interest rate cuts in the second half of 2024, which should alleviate debt burdens for businesses and households, spurring growth.

However, the report highlights significant challenges, particularly in the Scottish real estate sector. 850,000 fixed-rate mortgages due for renewal in 2024 may face higher rates at refinance, potentially leading to reduced household incomes and spending. This could impede consumption and growth.

Commercial real estate is predicted to become more appealing in 2024. Jennet Siebrits, CBRE’s head of UK Research, noted: “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.”

In Scotland, the market faces unique challenges, particularly in refurbishing or repurposing older office and retail assets.

Chris Dougray, executive director for Development at CBRE Scotland, said: “The fall in values, ongoing construction cost issues and rise in financing costs since mid-2022 will reduce opportunities to profitably refurbish or repurpose older stock until market conditions improve.”

He added: “That said, where values support adaptive re-use of buildings, we have already seen this theme of accelerated change of use proposals and expect it to continue.

“In the case of Edinburgh there are already multiple office to hotel proposals in play – for example Dalata at 28 St Andrew Square, and Point A at 9/10 St Andrew Square.”

The Scottish hotel market, especially in Edinburgh, is seeing a surge in demand and room rates, with new luxury accommodations like the W Hotel in St James’ Centre, Edinburgh, and Sandman Signature in Glasgow. The sector is poised to surpass pre-covid pandemic occupancy levels in 2024.

Sustainability remains a key focus, with the industry accelerating its transition to net zero. Understanding the costs and performance of sustainable properties relative to less sustainable ones will be crucial.

Sector-wise, the office market is expected to recover in H2 2024, with prime office yields compressing by year-end. The logistics sector anticipates moderate vacancy rises, while retail pricing remains attractive, particularly in retail parks.

The private rented sector, particularly Build To Rent, faces supply and demand imbalances. The purpose-built student accommodation sector is driven by strong demand against a backdrop of limited supply. Self-storage and data centres are forecasted to grow, with London’s data centre market reaching new heights.

Lastly, the life sciences sector, supported by public policy measures, expects increased take-up levels with new supply in 2024.

Ms Siebrits concluded: “A number of maturing asset classes, notably data centres and self-storage, have outperformed expectations, bucking the wider challenges facing real estate investors this year.

“As we look to 2024, we expect these sectors to benefit from further growth, underpinned by healthy investor appetite, increased demand and strong fundamentals.”

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