New Year Evolutions
Happy New Year! If #Week1 of 2024 had that familiar ‘back to school’ feeling – at least for those that weren’t enjoying some winter sun or Alpine pistes – it was at least embraced with some relish by a real estate sector that is pleased to put the less-than-vintage 2023 behind it.
Be in no doubt: challenges remain. But there are significant causes for optimism. At a macro level, the economic indicators are better than they have been for a while. The inflation beast may not have been entirely slayed, but it is on the canvas and struggling to get up. What’s more, this has been achieved without a huge impact on consumer and business confidence – companies and households may not be exactly flying, but they are continuing to hire and spend. The fundamentals that underpin so much of the real estate sector look robust enough for now.
The real world impact of this brighter outlook is already being seen. Mortgage lenders have seen the way the wind is blowing and decided they can afford to lower interest rates as they compete for market share, putting more money in consumers’ pockets. Central banks may not have joined the party yet, but they surely will as the year progresses. Commercial property lenders have a more complicated world to navigate – their challenge, like everyone in the sector, is to work out which sectors have the best prospects – but they too will embrace lower lending costs (for good assets at least) as the picture becomes clearer.
Perhaps no sector embodies the tentative optimism as well as retail. It has been a torrid decade for owners of shopping centres, but there is a growing sense that the market has finally turned. While some schemes will require wholesale redevelopment into new types of property, elsewhere solid retailer performances and widespread repositioning are demonstrating that the better assets have a successful future ahead. As Ian Sandford, president of Eurofund Group, says, 2024 could be the year that the occupier and investment markets converge, as interest rates reach viable levels and capital wakes up to the opportunities that are being presented.
It is a bit of a mixed picture across all sectors. Office owners that need to refinance will be biting their nails, apart from those with super-prime blocks. Logistics has calmed from the pandemic-led golden child to something a bit more prosaic that rewards traditional asset management capabilities. Life sciences certainly has the demand but not yet the supply that a truly dynamic market needs. Housing, particularly the single-family BTR sector, will continue to attract considerable capital as the UK embraces the asset class. Now more than ever, successful real estate investment rests on being able to pick the winners.
Wishing you all a happy, healthy and prosperous 2024, and look forward to catching up.