What is the outlook for the UK commercial property market in 2024?

We asked Andrew Page, Head of Commercial Finance at Seico Group for an expert viewpoint on the commercial property outlook.

To forecast economic or financial trends, you must analyse historical data and then assess what the prevailing conditions are currently. With this, you can then apply informed judgement based on what has been discovered historically.

So, what about commercial property? As with any market, a variety of factors come into play. Whether you’re investing for a return or planning to occupy the property yourself affects your approach. Let’s examine the key factors.

Interest rates

2023 was a challenging year for the commercial property market. Interest rates hit a 15-year high, and high inflation drove investments in commercial property to a decade low. As 2024 unfolds, however, there’s a positive shift. Key indicators, including the Bank of England, forecast a continuing downward trend in inflation. This promises a more favourable outlook for the remainder of the year.

The markets have already priced in a reduction in base rate and the Bank is now setting the scene for rate cuts beginning before Q3. Lower interest rates mean that property yields will increase, improving the attractiveness of commercial property as an investment. Lower borrowing costs also make it more affordable for a trading business to purchase their own property.

The economy

The commercial property market tracks broad economic trends. We all know about the UK economy in 2023, and that in Q4 we dipped into recession. Yet (unusually for GB PLC) this recession was dismissed as only being ‘technical’, and by the time we found out about it, we were through it already. I read today that the UK has outperformed its peers in 2024, with the latest purchasing managers’ index (PMI) being comfortably in expansion territory at 52.9, indicating growth. Unemployment appears to have peaked, the UK level reduced to 3.8% in the last quarter. If the economy is growing, businesses are more inclined to expand, with a resultant increase in demand for commercial property.

Sector trends

There has always been divergence in performance across property types, and this is likely to continue. The factors listed above are likely to see improved demand for industrial units, while the obsolescence of older retail and office units will be a challenge for the market. Investors holding ‘obsolete’ commercial space will need to adapt, particularly given the trend toward shared workspaces and ‘Tuesday, Wednesday and Thursday’ office working. The quality of the asset remains key, on a purely anecdotal basis it has long seemed to me that any ‘decent’ warehouse space, anywhere in Sussex is snapped up as soon as it becomes available.

There are other factors of course, not least of which being the requirement for many real estate loans to be refinanced in 2024. This could be a crunch year for many borrowers, and their ability and skill in negotiating new deals with their banks will be a major factor in the level of property coming onto the market. This is an unknown with the reality set to emerge over the coming months.

As we can see, there are conflicting pushes and pulls within this market space. This year shows definite signs of improvement compared with 2023 but like the weather, the outlook remains changeable.

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How Carpenter Box can help

If you’re looking to navigate the changing landscape of commercial property investment or ownership, Carpenter Box is here to provide expert guidance and advice tailored to your needs. Whether you’re considering investing, refinancing, or adapting to market trends, we have the knowledge and experience to help you make informed decisions.

Reach out to our Construction and Real Estate team on 01293 227670 for further information or personalised assistance.