Savills has issued its top commercial and residential picks for 2024.
The agent said it believes 2024 will be the year when investors stop making sector-wide pronouncements and start to focus on the traditional asset-specific basics.
Undersupply of prime and green office space across the UK’s major office markets will continue to be a driver of better than average rental growth over the short to medium term. Value-add investor demand will deepen in 2024 to capitalise on this, although larger projects will remain challenged by institutional caution.
Opportunistic investors will continue to be attracted to parts of the retail market by the high yields on offer, as well as the medium-term capital growth upside that could come from change of use. Savills does not expect to see a surge in retail investment volumes in 2024, but prime yield hardening in some sectors and locations is baked into its forecasts for both 2024 and 2025.
Logistics and life sciences will both be on investors’ shopping lists in 2024, owing to their attractive mix of structural change driven demand, restrained supply, and strong rental growth prospects.
Top commercial picks
- Strategic sheds: well-let logistics projects in good locations where the value over-corrected in 2021-2023. Buy in 2024 and sell into a hot market in 2026?
- Core offices that are priced as value-add: high yields and strong rental growth prospects mean that value-add returns will be briefly achievable on core offices.
- Essential retail: food stores and neighbourhood-focused retail look cheap. Population growth, omni-channel retail and constrained stock all support entering these segments now for an income-focused strategy.
Turning to residential, Savills said progressive cuts in the cost of mortgage debt over the next five years should lead to a return to house price growth and an increase in activity. The agent has forecast mainstream house prices to return to growth by 2025.
In prime central London, recovery looks overdue with prices still 19% below their 2014 peak. However, any recovery will have to take place in a much tighter tax and regulatory environment than before, at a time when the current parliamentary opposition has non-doms tax status and overseas buyers’ stamp duty firmly on its radar.
The prospect of a more widespread recovery in market conditions will come as welcome news to a housebuilding industry. Coinciding with the cessation of Help to Buy, rising build costs and a substantial shift in planning policy, the housing market downturn of the past year has been a bruising experience.
Large equity-rich landlords, on the other hand, have been much better placed to weather the storm, buoyed by a burst of strong rental growth. For developers, meanwhile, the benefits of selling built-to-order units off-plan (post Help to Buy), look more conducive to the process of assembling portfolios of energy-efficient, new-build residential homes than ever.
Top residential picks
- Best-in-class: whenever a market is in the late stages of a downturn or the early stages of a recovery, it’s the properties that are best-in-class that perform most strongly. It’s a combination of location, situation, aesthetics and quality of accommodation. Difficult to describe but you know it when you see it.
- Retirement for rent: the emergence of new players and new models in the retirement housing sector backed up by a structural imbalance in demand and supply underpins this residential investment pick.
- Partnerships with an affordable twist: while delivering a new generation of new towns is a laudable aspiration, the timescales, trials and tribulations involved in bringing these into being suggests it remains one for the evangelists. With a shift in focus to the delivery of affordable homes in the event of a change in government, we expect to see more partnerships between developers and affordable housing providers, especially the new generation of for-profit providers.
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