Where is the market at right now – and what’s in store for ’24?

I can’t believe I’m saying this but it would be great if a few more people could start talking the market up.

It used to be a given in the real estate market that however bad things got, property people would remain relentlessly optimistic and see it as their duty to accentuate the positive – whether it existed or not. A crippling recession? Excellent. Let’s snap up a few distressed assets. Redundant office space? Haha! A perfect PDR opportunity to convert it to resi. Another vacant retail unit? No problem. Let us count the ways we could repurpose it.

Lately, though, the rhetoric has been as subdued as the market, which is probably why the forecast from BNP Paribas Real Estate in October suggesting that super prime office rents in the West End could double to £300/sq ft by December 2024 stood out. Could it happen? Yes. Will it? Probably not. But who cares? It was a lone positive forecast bobbing around in a sea of bleakness, and it inspired hope. The question is: will confidence follow – and if yes, when?

At the moment, confidence seems to be in woefully short supply, despondency not so much. Someone told me that they were trying to get as much business as possible wrapped up by 11 December because people are likely to decamp early for Christmas as the market is so quiet. Another contact reminded me that is often in the most difficult years that the run-up to Christmas and the New Year is busiest as people scramble to get deals over the line before year end. But they didn’t correlate the level of activity with any degree of optimism; they saw it more as a last ditch attempt to make the best of a bad year.

My guess is that some businesses will effectively down tools early and others will go to the wire, depending which sector or sectors they are focused on. Looking ahead to 2024, the same principle will apply, with the level of activity dependent on the sector. Some sectors will continue to perform strongly or do better than in 2023. Some will start to recover having bottomed out. Some will hit rock bottom.

Here’s the thing, though. More sectors have hit the bottom than have yet to, and that means that while we will continue to see distressed assets come to market, prices have already corrected in some sectors, which augurs well for a return to normal service in 2024 – and an increase in confidence, especially as the economic outlook continues to improve.

AEW’s European Outlook for 2024 certainly gives cause for cautious optimism. It suggests that there is “an attractive revival and broad-based cyclical recovery opportunity” for prime European real estate markets and ranks the UK top in terms of projected total prime returns in the next five years (10.7% average across all sectors). The report adds that more dry powder capital for real estate investment might be available in 2024.

Meanwhile, in its 2024 Global Investor Outlook, Colliers notes that while challenging conditions will persist across EMEA in 2024, the interest rate outlook is clearer and bid-ask spreads are likely to tighten. It also identifies areas of opportunity, predicting that industrial and logistics and multifamily housing will both perform strongly and that ESG will become more integral to investment decision-making as investors look to add value.

However, the latest HMRC property transaction figures show macro-economic conditions continue to subdue both the residential and commercial real estate markets, so as property data and insights provider Search Acumen notes: “We haven’t turned the corner yet.”

So, if 2023 wasn’t the turning point year for real estate, could 2024 be? Neither AEW nor Colliers are talking the market up, but nor are they talking it down – and maybe that is as much as anyone can hope for right now. I’d like to hope for a bit more in 2024, though – and that we see a recovery in confidence as well as activity. It’s missed.

BE News sentiment survey

What’s your read on the current market – and what do you think is in store for ‘24? Have your say in our first ever BE News Built Environment Sentiment Survey, which is now live.

We don’t care which part of the built environment industry you work in or how senior you are. We just want as many of you as possible to take part in this important piece of research. It will only take a few minutes of your time.

The deadline is 11 December 2023 and we will reveal the findings before the end of the year. To complete the survey click this link https://forms.gle/WsG4kUvaaRzbDy1A8