COMMENT With a raft of recent deals, including Israeli investor Ariomori Group purchasing 5 Churchill Place in Canary Wharf for around £110m and Global Holdings Group acquiring landmark Mayfair office Vogue House, the beginning of 2024 has highlighted a strong level of appetite among investors for commercial real estate.
Despite various economic factors, including a period of high interest rates, challenging market conditions and political uncertainty, agile investors are still actively pursuing opportunities.
Many areas of the commercial real estate market, including hospitality, retail and offices, look set to continue to deliver strong rental growth, giving investors confidence and faith that the outlook for commercial property remains fairly positive for the year ahead.
Research from Knight Frank has revealed that occupier demand for offices in London has reached its highest level in a decade. Occupiers are currently searching for almost 12m sq ft of office space in London – a 34% increase compared with the same period in 2023. This signals a significant level of demand for new office space, with businesses typically seeking smaller spaces but in better buildings.
Navigating change
Investors are always looking at how the UK’s commercial property sector is performing against other major European markets. All major European markets are going through a transitional period, given factors such as the return to the office and employers navigating the changes being implemented as the world returns to its new normal.
ESG is front and centre for modern occupiers now, with an increasingly conscious workforce that will often only work for a company that aligns with their own personal values. With the sustainability credentials of the workplace typically forming the largest part of the “E” in ESG, occupiers must get it right to ensure they attract the best talent. With this in mind, investors must weigh up whether to source new or recently refurbished stock or go down the hands-on route themselves.
To this point, research from Fore Partnership estimates that there are around 6,500 office buildings above 20,000 sq ft in London that are in urgent need of retrofitting to achieve existing EPC regulations and meet London’s ambitious net zero goals. Currently around 1-1.5% of existing commercial property is being retrofitted, which is way below what is required to reach the UK’s 2050 goals. These numbers need drastic improvement in the very near future, presenting a good opportunity for savvy investors to acquire underperforming assets and retrofit them to bring them up to current industry standards and therefore attract the best occupiers.
Opportunities exist
The current economic landscape poses various challenges to investors in the commercial property sector. However, with occupier demand at an increasing high, interest rates dropping and a number of distressed assets coming to market as loans get called in, savvy investors that understand the potential challenges and the complete cycle can thrive in current market conditions and take full advantage of the opportunities presented.
They are pressing on with their investment strategies, executing acquisitions at the right time and ensuring maximum returns on their capital. Indeed, we are currently exploring nine acquisitions in prime central London this year, reflecting our own confidence in the market.
Byron Baciocchi is founder and chief executive of Unica Capital
