Optimism fuels investment surge in commercial property

Last year’s slowdown in activity frustrated the investment market, but with diminished competition as funds and property companies cut back their ambitions, cash-rich family offices are seizing prime assets they might normally struggle to secure. Nationwide, cash is king, and savvy cash buyers are snapping up bargains before the wider investment market resumes investing.

Despite a challenging 2023, investment activity in the commercial property sector is rising. The total deal volume in the UK was well below the 10-year average of £53.4 billion ($67.6 billion), but the fourth quarter showed a 14 per cent increase quarter-on-quarter, although still 15 per cent below the average. This upward trend has continued into 2024, with increased activity and deals across the country, supported by easing inflationary pressures and potential interest rate cuts, despite ongoing geopolitical uncertainties.

These positive trends are likely to spur further action, creating a herd mentality that fosters optimism and kickstarts an active investment market. As property investment becomes more attractive and deals continue, confidence is building, leading to a domino effect throughout the market.

Last year’s unfavourable market conditions made it difficult to determine property values, leading sellers to hold onto assets rather than sell at significant discounts. Buyers, too, were cautious, waiting for prices to drop. However, with the market’s slight improvement in Q1 2024, more transactions are happening, making pricing comparisons easier and boosting market confidence.

Environmental considerations remain a priority, with buyers reluctant to purchase second-hand buildings requiring significant refurbishment to meet tenant requirements and energy performance certificates of B or above. Many older office buildings are being repurposed for residential or student accommodation or demolished for industrial development.

Ultimately, prices have bottomed out, and savvy buyers should act now to take advantage of uncertainty before the upturn. There are good deals available, but as borrowing rates decrease, geared buyers will re-enter the market, increasing competition. Some vendors are already withdrawing sales, believing they can achieve better prices later in the year. Delays in spending will only lead to increased competition for stock as the investment outlook improves for the rest of 2024.

In summary, investors can take comfort in knowing that after a below-average 2023, the market is beginning to stabilise. Optimism is building, and despite ongoing geopolitical concerns, the market has bottomed out with the promise of easing inflation and reduced interest rates. More stock is expected to come to market, particularly from local authorities facing financial hardships. Buyers should consider investing sooner rather than later to avoid increased competition as the market continues its upward trajectory.

Real Estate Credit Investments Limited (LON:RECI) is a closed-end investment company that specialises in European real estate credit markets. Their primary objective is to provide attractive and stable returns to their shareholders, mainly in the form of quarterly dividends, by exposing them to a diversified portfolio of real estate credit investments.

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