Commercial property investment opportunities and top picks for 2024

This year will be an opportunity to buy at the very bottom of the cycle for commercial investors – with retail, industrial and office space looking comparatively cheap,

Savills says.

The agency suggests that opportunistic investors will be attracted to parts of the retail market by rebased rents and rates, and higher yields, as well as the medium-term capital growth upside that could come from change of use. 

Occupier demand for prime high-quality and highly rated warehouses, meanwhile, is also set to keep prices rising in 2024, especially in London, according to the company.

And after an uneven year for the UK office market, cooling inflation, falling borrowing costs, and good rental growth prospects will bring some development schemes back into viability territory in 2024, as investors look to capitalise on the undersupply of prime and green office space.

This all comes in the agency’s annual cross-sector forecasts for investments in 2024 to 2028.

The firm’s commercial themes and top picks for 2024 include:

·         Savills believes that 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 remains a fact, and 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, though 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 some prime yield hardening in some sectors and locations is baked into its forecasts for both 2024 and 2025;

·         And it insists that logistics and life-sciences will both be on investors’ shopping lists in 2024. Both sectors offer an attractive mix of structural change driven demand, restrained supply, and strong rental growth prospects, so it is easy to see why income-focused investors in particular continue to be enthused by them. With annual rental growth prospects in the high single digits, for some supply constrained markets per annum, the rationale for buying while these sectors are comparatively cheap remains a good one.

Top 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: Foodstores 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.