Investment volumes for UK commercial real estate are forecast to fall by a third to £41bn.
According to BNP Paribas Real Estate, £18.5bn was invested in UK CRE in H1 2023, less than half the volume compared to the same period last year.
It expected total volumes to reach £41bn this year. That is down a third both on last year and the long-run average.
However, it predicted a rise of 15% to £47bn for 2024.
The firm anticipated that the peak bank rate would rise to 5.5%, or potentially 5.75% by the year end, which would “keep investors on the sidelines”.
Rate cuts expected in the second quarter of next year would bring only “marginal improvement to the market”, but would be enough to tempt investors to delay any purchases, it said.
Vanessa Hale, head of research and insights at BNP PRE, said: “The impact of an ever rising base rate on real estate transactions has been stark, with the first half of the year failing to deliver a meaningful recovery for the UK CRE market. However, there is more activity coming through, albeit slowly, and investors are now very sensitive to data releases so any momentum remains complex.”
Analysis of investment trends during the first half of 2023 revealed that prime retail assets were in high demand, with investment in traditional West End locations in London reaching £810m.
Assets with the very best ESG credentials were in highest demand, totalling more than 500,000 sq ft and accounting for an 11.5% share of total central London take-up in H1 2023.
Industrial investment volumes fell by 63% year-on-year in H1, as capital values declined by around 25%. With rental growth forecast to remain positive, investors continue to see value in the sector’s long-term structural trends.
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