November 2024 Newsletter

A look at the commercial property market for the end of 2024

As we approach the end of 2024, the UK commercial property market continues to show resilience despite recent economic volatility. With a new Labour government securely in place, the budget announced, and the US election completed, there is hope and promise of a more stable economy for the coming months. Generally, throughout this year, the property market has shown signs of recovery, with various positive economic indicators contributing to a more stable outlook. In this newsletter, we are reviewing the current state of the market, our thoughts on the end of this year, and the opportunities current property owners may find as we move into the new year.

The Current State of the Market

One of the key factors impacting the market has been the higher interest rates, which have led to a significant drop in capital values, particularly in office and industrial properties. Retail spaces have also faced structural changes, but the decline in capital values has slowed. The market has seen a divergence in office occupier demand trends, with Central London showing a positive trend while other parts of the UK remain flat or slightly negative. Despite these challenges, our team at John D Wood have recognised signs of recovery and cautious optimism among market participants for the past quarter.

Earlier this year, the RICS UK Commercial Property Monitor for Q1 2024 indicated that the market shifted towards a recovery phase, with 35% of respondents viewing the market as having reached a floor for this cycle and 38% seeing early signs of an upturn. The all-sector net balance for tenant demand came in at +4%, up from a marginally negative figure of -7% previously. Industrial space has seen an uptick in occupier demand, with a net balance of +14% of respondents noting an increase.

As a business, John D Wood have found success in the retail sectors outside of London, as well as prime office space in desirable parts of Central London. While some transactions are slower to complete, those with capital to invest in property within the UK are ready to do so and have benefited from slightly lower prices as a result of economic uncertainty.

Hopes and Predictions for Year-End

As we move towards the end of the year, there are several factors that could influence the market. The anticipated interest rate cuts are expected to boost investor confidence and provide relief in debt costs. This, in turn, could stimulate investment activity and help the market recover from the significant drop in capital values experienced earlier in the year.

The Labour Party’s landslide victory in the general election has created a more predictable political environment, with a clear mandate to implement policies that foster growth. The new government’s emphasis on reforming planning and increasing infrastructure investment is likely to have far-reaching positive effects on the property market.

Since the election, John D Wood have completed on a £6m multi let mixed use investment in Guildford, Surrey. The property has guaranteed income from Halifax and Glowmade. There is also one vacant office floor which is currently being marketed by John D Wood letting department. As a business, we have seen a huge amount of interest in these vacant units, which would have been much slower to move a year ago.

As with all Labour governments, there is a promise of an investment in industry and industrial property during this political term. Signs of industrial businesses feeling more optimistic about the state of the economy have been visible by the number of lettings on industrial properties we have had in the past 6 months. More specifically, our professional team completed a three year regear with Veolia on two floors on a multi-let office in Victoria, which is managed by John D Wood. This transaction follows The Tenants renewal with Westminster council government contract. The reversionary lease was signed at a fixed rental increase.

Potential Opportunities for Property Owners

Property owners can look forward to improved returns driven by stabilising yields and the potential for capital appreciation across various property types. The government’s commitment to infrastructure development, with a pledge of £1.8 billion for upgrading ports and enhancing supply chains, will further stimulate demand in commercial property sectors.

Our investment team has recently launched ‘Welby House’, a fully let Freehold office investment in Victoria. The building has AWAULT of 3 years and a block date with all leases outside the 1954 LL&TA. The passing rent is £295,000 per annum with fixed increases next year.  Despite being currently 50% let to a quasi-government tenant, the property is currently underlet. Considering the current state of the property market, we are confident that through various asset management angles, we will be able to secure long-term tenants either by additional massing potential or a chance of use. Being able to project manage and market this building marks an exciting time for us as a business and the commercial property market.