Market Trends of UK Commercial Real Estate Industry
Office Segment Showing Significant Growth in the Market
- In 2023, there was a strong flight to quality, with demand far outpacing supply. This was partly due to occupiers utilizing their buildings to draw in employees into a hybrid working environment, and it is anticipated that this trend will continue into 2024 and the coming years.
- The increased demand for high-quality space has exhausted the development pipeline, with 38% of the UK office space projected to be occupied by occupiers by 2025. As the pipeline continues to deplete, there will be increased competition for the highest-quality buildings, resulting in higher rents at the premium end.
- At the top end of the market, rental growth is expected in 2024 across all UK office markets. The full-year forecast for rental growth is 3% in most UK markets, continuing the strong growth seen last year.
- In most markets, new record headline rents were achieved in 2023, and this is expected to continue in 2024. Buildings in prime locations with high-quality amenities and outdoor space are expected to register extremely high rental growth in 2024.
Understand The Key Trends Shaping This Market
Download PDF
Retail Segment Expanding Rapidly
- Retail sales are expected to remain muted in 2024. Some retailers will continue to expand, while trading conditions will remain difficult with modest increases in vacancy rates. Retail investment will continue to diversify, with retail parks continuing to be the go-to option for many. However, the recent growth in other sub-sectors will continue in 2024.
- UK retail sales volumes remained lower than in 2019 throughout 2023. The subdued performance is expected to persist this year, with significant growth expected to return later in the year.
- Retail online penetration has returned to the trend of the years before the pandemic (2015-19). Based on projections of the drivers of online penetration, it is anticipated that there will be moderate growth to reach 28% by the end of this year.
- Profits are expected to take a hit in the coming year as occupiers continue to push consumers to use their physical stores as much as possible to increase profitability. For some, expansion is likely, although the emphasis will be on more ‘safe’ spots. With trading conditions expected to remain difficult in the coming year, there will be a slight increase in the vacancy rate.
- Pricing in the retail sector was expected to remain competitive compared to other commercial sectors in 2022. While retail parks will continue to be the preferred option for many consumers, there will continue to be an appetite for grocery stores and shopping centers.
