A “seesaw of sentiment” in the first half of 2023 will give way to greater investor confidence in UK commercial property markets later next year, according to Colliers.
The international property firm reckons the outlook will improve as “the inflationary storm passes, monetary policy pivots to neutral and the economy proves resilient”.
So does this mean we will see more of the kind of deals which saw Equinor House in Aberdeen sold to an overseas investor for £20 million a few months ago?
What is Colliers’ forecast?
Colliers recently signalled a slowdown in Scottish office investments.
In its latest forecast, the firm predicts around £60 billion will be invested into UK commercial property in 2023 as the second half of the year proves to be more stable, following a short sharp pricing correction.
And the Bank of England’s base interest rate will peak at 4% or less during 2023, it says.
Walter Boettcher, head of research and economics, Colliers, added: “Looking to 2023 as a whole, a material increase in transactional activity will take place in the second half as prime pricing stabilises.
We are in the middle of a pricing correction with yields rising rapidly across most asset classes. We downgraded our commercial #realestateforecasts accordingly.
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Find out more in our Q4 UK Real Estate Investment Forecasts report 📖 https://t.co/tf6TdoSvDn pic.twitter.com/NvUcYZJmqA
— Colliers UK (@Colliers_UK) November 25, 2022
“However, recalibrating prices for sub-prime non-ESG (environmental, social, and governance)-compliant assets will take longer as refinancing needs clash with higher debt costs and tighter banking requirements.
“Inflation will fall rapidly from Q2 2023, when technical year-on-year statistical base effects begin to drive the CPI (consumer price index) figure lower.
“Falling inflation will be accompanied by a recovery in investor confidence as Bank rate expectations and debt costs moderate substantially.”
In debt markets, Colliers predicts appetite for lending will grow but there will be a continued flight to quality and ever greater scrutiny of income streams to service higher debt costs.
Laurence Richardson, director in Collier’s debt advisory team, said: “Asset pricing is shifting quickly to reflect higher funding costs.
“Alternative lenders will secure attractive risk-adjusted deals by virtue of their more flexible underwriting processes and risk analysis, compared to traditional providers of finance.”
Flight to quality
Rents for Grade A office space in key major cities are expected to grow in 2023 as steady demand for prime space continues.
But when looking at the office market as a whole Colliers expects average rents to fall as employee numbers decline due to the recession.
The firm also expects to see the flex sector (any building or commercial property that has a mixture of warehouse, office and or retail space) continue to grow next year, in response to steady demand from both small and medium-sized enterprises and corporate occupiers.
