Our Thoughts
Thu, 18/01/2024 - 12:00
· 6 min read

Capitalise | The numbers that will have a big impact in 2024

Real estate investing strategies are increasingly shaped by data. Indeed, numbers can be a powerful tool in predicting the future and give competitive advantage for those that know how to interpret them.

To get a feel for how the biggest trends in investing will drive the UK’s commercial real estate market in 2024, we asked some of our expert ‘Capitalise’ panellists to pick a single datapoint that they believe will have a big impact over the course of the year.

From borrowing costs to worker shortages and the impact of new technologies on our mental health, you can find the results below:

 

Number: -25% | The peak to trough decline in European core real estate values so far

Argie Taylor, Head of International Investment Group at BNP Paribas Real Estate UK

Source: BNP Paribas Real Estate

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The rise in debt costs has cut 25% off European core real estate values, though there is quite a bit of variation depending on the asset and location. There may be a little room for further declines at the beginning of 2024 across Europe, but the bottom is now very close for markets such as the UK.

Our clients tell us there is a significant amount of capital waiting to be deployed, though for the time being many investors can find better returns elsewhere. If the recent forecasts from the Federal Reserve turn out to be correct, both the Bank of England and the European Central Bank will come under pressure to loosen monetary policy. When that happens, pockets of value that are already appearing will begin to grow. Investment will begin rising from a low base, starting with the thematic subsectors like logistics, plus assets with a strong sustainability angle.

 

Number: 20% | Estimated percentage of UK commercial real estate loan book that is due to mature in 2024

Rachel Dickie, Executive Director - Investment, Grosvenor Property 

Source: Bayes Lending Report

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Approximately 20% of lenders’ UK commercial real estate loan books are set to mature in 2024, according to estimates from the Bayes lending report released in 2023. This is more than double the volume that matured in 2023. We don’t expect this refinancing to trigger significant distress though; as investor sentiment is improving, yield curves have fallen, and occupier markets have held up well for good stock. In fact, in many cases valuations may be close to bottoming out, as they have already adjusted in the last 18 months. The outlook could also brighten further as investment volumes start to rise through the year.

Nevertheless, a higher interest rate world and still tight lending conditions are likely to make financing expensive in 2024, especially for developments and secondary stock. This will create opportunities in debt markets for those who can do their due diligence well. This is especially the case for the right developments, which could benefit from delivering into a reduced pipeline of competition and better investment market conditions.

 

Number: 4.25% | Our forecast for the Bank of England base rate at the end of 2024

Matthew Swannell, Economist, BNP Paribas UK

Source: BNP Paribas CIB

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This will be the year that UK interest rates fall instead of rise. In December, Bank of England officials persisted with the message that another hike may be necessary, but we don’t expect another rise. We think the first cut will come in the middle of 2024 and that rates will be cut multiple times in the second half.

That would culminate in the Bank Rate sitting at 4.25% at the turn of the year, barring another big inflation surprise.  The resilience of the UK consumer has been a surprise, though we think the erosion of liquid savings and the fact that previous rate hikes are still feeding through nullify that risk to some degree. Even with interest rates being cut,  some households will face new mortgage rates that are higher than their existing deal.

 

Number: 43 billion | The amount UK investors will spend on UK commercial real estate in 2024

Vanessa Hale, Head of Research & Insights, BNP Paribas Real Estate UK

Source: BNP Paribas Real Estate

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The year of price discovery is over. Our provisional analysis for 2023 reveals investors spent around £38 billion on UK commercial real estate, a modest volume when it’s compared to the pre-pandemic 5-year average of £67 billion. The coming year will bring more clarity, setting the foundation for a more meaningful recovery for 2025 onwards.

We believe investment volumes will pick up to £43 billion in 2024. That small uptick will be driven by modest levels of distress creeping into the system as Covid-era deals are refinanced. That will provide some cycle-defining deals for some investors, and indeed clients are doing their homework on some of these deals already. Relief will come for some: easing interest rates will provide breathing space for increasing numbers of investors to begin vital upgrades to portfolios as the year progresses.

 

Number: 62 | The percentage of people who want to slow down the pace of their life

Ben Page, Chief Executive Officer, IPSOS

Source: IPSOS

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The percentage of people in the UK that agree with the phrase “I wish I could slow down the pace of my life” has risen to 62%, up from 42% a decade ago. People of all ages feel that their life is too complicated and fast-paced.

These findings will have a profound effect on how successfully business leaders are able to introduce new technologies or dictate changes in workstyles. Companies must carefully consider how they balance the need to offer their employees a good work-life balance with the need to reduce costs and maintain productivity.  

 

Number: 11,000 | The number of planners working in the public sector

Caroline McDade, National Head of Planning at BNP Paribas Real Estate UK

Source: The Royal Town Planning Institute

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The number of planners working in the public sector has shrunk by a quarter since 2009. The acute shortage of public sector planners is weighing on the UK’s ability to deliver vital projects. Delays in delivery of planning permissions for housing, infrastructure and alternative uses provide another layer of uncertainty at a time when investment is desperately needed. In particular, significant numbers of office buildings will need major work, to convert them to new uses or upgrade to meet occupier demand and climate targets. Whilst the government is attempting to tackle the shortage of planners, the reform required and looming general election in 2024 will have a big impact on what’s possible.
 

The UK planning system itself is also in a constant state of change, which provides another layer of uncertainty. The effects of the updated National Planning Policy Framework (NPPF), the Levelling Up and Regeneration Act 2023 and the implementation of biodiversity net gain (BNG) rules will all be felt this year, providing winners and losers.

 

To discover more of our latest reports and insights from our experts, visit our Capitalise Hub

Capitalise | The numbers that will have a big impact in 2024