Advisor CBRE is anticipating a nascent economic recovery in H2 2024, with a stronger rebound forecast for 2025, according to CBRE’s UK Real Estate Market Outlook 2024, published on Thursday.
As inflation continues on its downward trend in 2024, before reaching its target in 2025, the Bank of England is expected to start cutting rates in the second half of 2024. This will reduce the debt burden on both businesses and households, stimulating growth, according to CBRE Research.
Mortgage rollover poses the biggest risk to growth forecasts, with 850,000 fixed-rate mortgages due for renewal in 2024. These mortgages will be impacted by higher rates at the point of refinance, which could lead to a fall in household incomes, reducing the ability to spend, resulting in lower-than-expected consumption.
At a real estate level, CBRE’s head of UK Research, Jennet Siebrits is expecting commercial real estate to be more attractive in 2024, with investment prospects set to improve as value declines have stopped in some sectors and slowed in others. 'The high interest rate environment along with falling values has created a lack of viability for debt buyers and contributed to a thin market. However, as debt costs fall, this should improve. 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.'
However, divergence in performance across property types is likely to persist in 2024 and obsolescence, particularly in older office and retail assets, will be a key challenge for the UK real estate market next year. 'The fall in values and rise in financing costs since mid-2022 will reduce opportunities to profitably refurbish or repurpose older stock until market conditions improve,' added Siebrits.
Sustainability will continue to be a focus for the year ahead, with an accelerated transition to net zero across the industry. There will be a period of price discovery as the industry improves its understanding of the cost of sustainability capital expenditures and how sustainable properties perform relative to less sustainable assets.
Furthermore, physical climate risks to buildings and infrastructure will be of growing importance to occupiers, investors and lenders and regulation and disclosure will begin to turn its focus to nature and biodiversity.