Property investment markets to see 'green shoots of recovery' by end of 2023

Commercial property investment markets are expected to see “green shoots of recovery” by the end of 2023, industry experts have predicted.

Following a period of uncertainty, pricing is likely to stabilise towards the end of next year, with a “continued flight to quality” being a key driver of activity across all asset classes, according to CBRE’s UK market outlook. In the near term, a moderate recession is anticipated, with high inflation and rising interest rates putting downward pressure on economic activity. Income returns, rather than capital growth, will likely underpin commercial property investment in 2023, the report notes, heightening the importance of asset management and the financial performance of occupiers.

Steven Newlands, head of capital markets for CBRE Scotland, is anticipating further inbound investment into the UK market. He said: “While we forecast investment volumes will drop somewhat, the UK real estate market benefits from a diverse investor base. The realignment of prices towards the end of 2022 means that 2023 may provide opportunities for private capital to enter the UK market.

“Certain sectors will remain attractive to investors, while others have robust rental growth prospects. We know equity is waiting on the sideline to invest, and as the markets recover investors will look to deploy and more than likely will focus on best-in-class assets across the sectors. Green shoots of recovery will materialise.”

In the office market, leasing activity is forecast to be constrained due to a fall in office-based employment, post-pandemic. CBRE expects continued strong demand for the “most sustainable and inviting office space” and as a result, the appetite for properties that are newly developed or refurbished will remain high.

Pricing is predicted to stabilise during 2023 and this should stimulate more investment activity. CBRE forecasts office investment volumes to be down 20 per cent year-on-year in 2023, with the majority of transactions likely to take place in the second half of the year.

David Smith, managing director of CBRE in Scotland, said: “In Edinburgh, the short to medium term supply pipeline is a real concern - for Scotland’s capital to have this little future stock is an issue if we are seeking to attract new corporate occupiers into the city. There needs to be an enhanced strategic vision to offer clarity on the areas of growth for Edinburgh’s commercial activity over the next 20 years.

“The city continues to be an indigenous market with it being rare for a new entrant to take meaningful space. By comparison, of the take-up in Manchester 45 per cent is new inward investment. If Edinburgh wants to attract new, dynamic and fast-growing companies then this is a whole strategy piece that needs addressing in the very near term.”

In Edinburgh, the short to medium term supply pipeline is a real concern, CBRE noted in its latest research.

He added: “In Glasgow, 2022 has been slow in terms of activity. You could say this is linked to a lack of quality product (Grade A vacancy is 0.4 per cent), however, it is likely linked to getting people back into offices. Most commuters travelling into the city arrive on public transport and it’s exactly these people who have been choosing to work from home. Occupiers have therefore mainly chosen to re-gear, downsize or move into serviced office space.”