Cautious optimism the overarching outlook as we head into autumn

The first three quarters of 2024 have seen the property market pendulum slowly swing back towards favourable conditions for developers and investors, as cooling inflation and dropping interest rates are met by the arrival of a new government keen to talk up a growth strategy that leans heavily on house building.

Here, we look at some of the key market indicators, and the views of industry experts, to explore how the property sector is shaping up as we dive into autumn and winter.

Fastest recovery rate in Europe

While Britain has faced a period of doom and gloom, with high interest rates and a ‘cost of living crisis’, the prevailing winds look broadly positive for the nation – especially when it comes to property.

Market data indicates that the UK’s commercial real estate market is recovering quicker than the rest of Europe.

Driven in part by political stability, UK transaction volumes rose seven per cent, while volumes across the continent have remained stagnant, according to MSCI.

This is likely to create a tantalising environment for external investors that are now seeking to utilise cash reserves that have been built up over recent years.

The K-shaped recovery

While commercial property has experienced a brutal two years following the ill-fated ‘mini-budget’, many analysts believe that the improved performance across the first half of 2024 should continue into the autumn.

Aviva Investors published a paper in July presenting data that indicates that the market is finally on an upward trajectory, but stressed that this is not equal for all assets.

They state that a ‘K-shaped’ recovery is taking place, with lower-risk, high quality real estate performing well, while other assets face challenges caused by capital expenditure needs and occupier risks.

Knight Frank’s five macro arguments for an autumn 2024 ‘inflection point’

As one of the nation’s leading real estate consultancies, Knight Frank has its finger on the pulse when it comes to market transitions.

They hypothesis that there are five key factors that could drive recovery as we head into the back end of 2024 and a ‘busy autumn’.

Namely, they believe the following factors could see the sector arrive at an ‘inflection point’:

• Consolidation following a tumultuous period for the sector
• Good fortune deriving from interest rate cuts and stabilised inflation
• The revival of public-private partnerships via Rachel Reeves’ £7.3bn national wealth fund
• Supply side reforms to encourage building
• A period of political stability that can grow investor confidence

Academics quell fears of a bubble

The topsy turvy nature of the British property sector, which has been destabilised over the past five years by a combination of political decision-making and the Covid-19 pandemic, has let to some fears that there could be sector specific bubbles in areas that have experienced rapid growth.

However, analyses from academics at Bayes Business School should serve to reduce fears for investors and developers.

In an article published in the Journal of Financial Stability, Professor Sotiris Tsolacos said: “In the aftermath of high inflation, our research suggests that the main commercial real estate sectors are most likely not experiencing a price bubble.

“However, monthly price monitoring in the commercial markets is even more important during a time of uncertainty and flux. The research also shows that anyone monitoring the health of commercial real estate markets needs to use the most appropriate indicators for each sector.”

They identified that although the distribution warehouse sector had experienced a post-covid price bubble, prices have gradually returned to more sustainable levels.

Final word

The prevailing opinions of many industry experts is that a period of growth looks set to return for British commercial property, after a challenging few years for investors.

While a sustained ‘inflection’ is far from guaranteed, the noises from many industry experts represent a ray of optimism for the sector’s future.