What a difference a year makes!

Market Overview

Business confidence has been growing although it did dip last quarter perhaps in reaction to the likelihood of tax rises in the upcoming budget. Interest rates are however slowly – but surely – heading on a downwards trajectory. Following the general election, we have increased political stability and some degree of certainty over what the next five years have in store (and we’ve even been promised a bill to prevent another Truss-style mini-budget!). And, while far from sunlit uplands on the horizon, the economy is showing positive signals.  

We’ve hit the bottom of the cycle, and we’re now climbing up. And while there has and continue to be particularly hot asset classes, it’s now all sectors of the market witnessing this improvement

Offices have long been at the bottom of everyone’s wish list since the pandemic made many businesses (and employees) re-evaluate their priorities. There has, however, been an uptick in occupational interest. Rental growth is particularly positive for many best in class south east markets. And the mood music appears to be towards a further return to the office – with tech giant Amazon even having now mandated five days a week – which is being supported by an increased investment in best-in-class spaces in order to sweeten the deal for colleagues.

Retail yields have been historically high as the sector has had to reinvent itself in reaction to  e-commerce, post covid.  Rents have rebased and the occupational market is looking stronger than it has in years.  Investor appetite is improving, with a prime example being British Land redeploying capital into the sector.

Logistics and retail warehousing remain compelling classes. There has long been a depth of interest, which feeds into more competitive bidding and stronger pricing, and this looks set to continue. Retail warehousing in particular looks appealing, and the lack of stock in the south east of England seems finally to be pushing investors to look beyond the region to opportunities elsewhere in the country.

And alternatives – assets ranging from GP surgeries and childcare facilities to hotels and car parks, united in having long leases with strong covenants – continue to attract income-hungry investors. As interest rates fall, expect to see high-net-worths (HNWs) invest still more into the sector as the money in their bank accounts fails to grow as quickly as it has done for the past couple of years.

And where’s the money coming from?

Simply: all over. We’re seeing a huge uptick in interest from mainland Europe right now, likely attracted to the UK’s comparative political stability and growing economy.  

High Net Worths from the Middle East often find the UK a strong market across commercial real estate, and as part of our mandate for Citibank we’ve transacted a number of deals recently. 

And even UK funds are more acquisitive than they have been, particularly for best-in-class assets (although they’re increasingly finding themselves in a more competitive bidding market).  

What does that mean for the market?

Subject to the government's autumn budget, we’re expecting to see a much more flowing investment market in H2 – and therefore a stronger market going forward.  

Read Allsop’s full analysis into the H2 investment market and outlook across sectors