UK 2023 commercial real estate investment falling

According to estimates, the UK commercial real estate (CRE) is expected to get one-third less investment (£41 billion) this year compared to last year and the long run average.

BNP Paribas Real Estate predicted this volume will rise by 15% to £47 billion by the close of 2024. £18.5 billion was spent on UK CRE in H1 2023, less than half of H1 2022.

The asset manager predicted the peak bank rate to touch 5.50%, possibly 5.75%, by the end of the year. According to estimates, this might discourage investors from making decisions due to market volatility.

BNP Paribas Real Estate predicted rate cuts in Q2 2024 to “marginally improve” the market. However, it added that many investors will still wait for borrowing costs to drop more before making a move.

Vanessa Hale, head of research and insights at BNP Paribas Real Estate, commented that the market should be encouraged by the lack of distressed assets coming through and healthier balance sheets and resilient rental growth in key sectors and locations limiting covenant breaches.

The Bank of England’s recent survey indicates that debt availability will worsen in the near future, Hale cited. “While institutions aren’t in trouble, they might keep selling more than buying for now. Well-capitalised private investors are in a fantastic position to build portfolios for the next cycle.”

BNP Paribas Real Estate’s analysis for H1 2023 revealed prime retail assets are now in “high demand”, with investment in traditional West End locations in London reaching £810 million. 

Offices demonstrating the “best ESG credentials” continued to attract tenants, including law firms (over 500,000 sq ft). They made up 11.5% of central London’s H1 2023 take-up. It stated that this demand for best-in-class space continues to apply upward pressure on prime central London office rents.

Living sectors continued to attract investment amid demographic and affordability challenges.

© 2023 funds europe

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