2024: PROPERTY FUNDAMENTALS WILL OVERCOME THE UNCERTAINTY

January is traditionally a time for looking ahead, but as I said in this column 12 months ago, making predictions is a dangerous pastime at the best of times, writes Guy Gowing. 

2023 may have been marginally less turbulent in both political and economic terms than 2022, but there can be no doubt that we enter 2024 still in a period of considerable uncertainty, despite a few positive headlines.

This year is an election year, not only here in the UK, but also in over half of the developed world.  Political instability will always knock business confidence, although this is likely to be tempered somewhat by the short-term effects of the pre-election giveaways we are likely to see in the Chancellor’s Budget on 6^th March.

Whilst economic growth is at best negligible, we are starting to see the very early signs of good news.  Notwithstanding this week’s announcement of an increase in the headline inflation rate to 4%, the trend is downwards, and as a result most commentators expect to see interest rates starting to come back down later in the year.

That expected reduction will ease the situation for property investors, both in terms of rendering the financing of their investments and in making the relative returns (compared with cash-based investments) more attractive.

That recovery could still be knocked off course by international events.  The world is as volatile as I have known it since the end of the Cold War, with conflict in the Middle East threatening to spread, the situation in Ukraine far from being resolved.

Locally, the economy is also in something of a state of flux.  This is not necessarily a bad thing, although the announcement of the closure of Bernard Matthews’ Great Witchingham plant is undoubtedly a blow.  But in a changing world, the fact that our local economy is prepared to evolve and innovate is vital to its prosperity.

A thriving local economy is obviously good for commercial property investors, with sustained demand from occupiers resulting in strong rental yields.  Meanwhile the restricted supply is driving capital growth, giving investors a double benefit. 

Commercial property will remain an attractive prospect in 2024, provided investors put their money in the right type of property in the right location.

The superstar performer in recent years has been industrial and warehousing property sector, with soaring demand from online retailers seeking fulfilment space, and small-scale manufacturing in particular doing well, partly because more businesses are ‘making their own’ instead of relying on unreliable and often disrupted imports.

There is a real dearth of quality freehold investment opportunities, with the consequence that prices are very strong.  This capital growth will make sustainable development more attractive, and we are already seeing an uptick in new-build industrial units; this is likely to accelerate over the next 12 months.  Meanwhile, while demand outstrips supply, rents will continue to creep up, increasing returns for investors.

The retail sector continues its transition from the traditional model, and is learning how to co-exist along with its online competitors.  This year we will continue to see a repositioning in the High Street, with more mixed use (including food and drink, entertainment and other experiential businesses) and established retailers jostling for improved locations..

In Norwich, we are finally seeing large retail spaces being re-occupied, including the former Top Shop store becoming a Mountain Warehouse, Poundland moving into the former BHS premises, and plans finally advancing for the redevelopment of the former Debenhams store.  This demonstration of a renewed confidence in bricks and mortar retail will encourage other operators around these anchors. 

And as large retailers jostle for the best locations, so start-ups and niche retailers will infill behind them.  This will remain a vibrant sector in 2024, as evidenced by the very high occupancy rate in the Norwich Lanes area.

Outside of the city centre, suburban convenience retail will continue to thrive.  However, the health of retail in market towns is very much dependent on localities taking a holistic view about their town centres. 

Where this is done well, there will be good opportunities for investors and retailers alike – a good example of this is Aylsham, where a de facto plan to reinvigorate the town centre has resulted in a healthy and sustainable blend of newer experiential outlets (especially food) and more traditional small retailers.

North Norfolk will continue to buck the trend towards online retail, with its specific older demographic still very much wedded to in-person shopping.

I predict that 2024 will see the return of ‘being in the office’ as the norm, rather than working from home or hybrid working with only occasional office attendance.  Businesses have realised that the social and creative interaction that having staff together in person brings is something they cannot live without.

As a result, employers are clamouring for good quality office space which they can make attractive to those who have grown used to working elsewhere.  For investors, quality of office accommodation is now more important than sheer volume of space.

In the office market, good quality supply remains limited, not least because much older office accommodation has now been removed from the market through Permitted Development Rights, and also because we are seeing other types of occupiers seeking good office buildings – especially in the education sector: Norwich University of the Arts has occupied several city-centre buildings, with City College, various academies, and language schools all also taking space.

Norfolk remains an attractive location for investors in holiday lets, and whilst the market has settled down from its heady peak of two or three years ago, this sector remains a good place for those prepared to undertake management-intensive investment.  Occupancy rates for non-prime properties has fallen off a little, but Norfolk continues to attract a wide range of holidaymakers – including older people without children - boosting off-peak bookings.

Politically, economically and globally, 2024 presents plenty of uncertainty.  But the basics of a fundamentally strong local economy, buoyant demand from occupiers, and limited supply, all mean that this year should be a good one for commercial property investors – as long as they seek good advice in terms of choosing properties, letting policies, and obtaining finance.