Intelligent Investment

UK Real Estate
Market Outlook
2024
REPORT REAL ESTATE

CBRE RESEARCH
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Contents
01 Economic Outlook 08 OPRE
(Senior Living, Hotels,
02 Investment Healthcare, Leisure, Food
& Beverage,
Self Storage, Roadside
03 Sustainability & Automotive)

04 Office 09 Data Centres

05 Industrial & Logistics 10 Life Sciences
06 Retail

07 Residential
(Residential Sales, Build-to-Rent,
Affordable Housing,
Purpose-Built
Student Accommodation)

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Introduction
2023 has been a challenging year for real estate due to The forthcoming general election is likely to be a major
persistent inflation and a 15-year high in interest rates, focal point in 2024. The Conservative party are currently
both of which negatively impacted economic growth. trailing in the polls and are determined to increase its
This led to plummeting volumes of commercial real ratings. This could potentially involve introducing some
estate (CRE) investment, which hit a decade low, as beneficial tax changes in the Spring Budget. In addition
investors grappled with declining asset values and to politics, sustainability will be a key concern in 2024.
increased borrowing costs. Yet while 2024 will likely We expect a sustained shift towards flight to quality,
start the same way, there is more to be optimistic with the most energy efficient assets being highly
about. The inflation rate significantly fell towards the sought after. The understanding of AI will accelerate over
end of 2023 and is expected to continue its downward 2024 and its adoption will grow, which will help enhance
trajectory. Although we anticipate base rates to stay efficiencies in the real estate sector.
high for an extended period, there is the real prospect
of rate reductions in the latter half of 2024, which would Continue reading to learn more about the prospects
be advantageous for both occupiers and investors, and for real estate in 2024.
should stimulate increased activity.

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Economic Outlook
The UK economy remains challenging as we enter
2024, with persistent high inflation and stagnant
output. However, the backdrop will improve in the
second half of the year, leading to a recovery in 2025.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Inflationary pressures will continue to ease in 2024, driven by further decreases in energy
and goods prices, along with softening wage growth and service inflation due to labour
market slack. We expect inflation will reach the Bank of England’s 2% target by early 2025.

02 Reflecting elevated inflation rates, the Bank of England increased its base rate by 500 basis
points in the two years from mid-2021. However, since the second half of 2023, UK rates
remained unchanged at 5.25%, and we think they have now peaked. In the second half of
2024, the Bank will switch its focus to cutting rates to stimulate future growth.

03 The labour market will continue to weaken in 2024 as unemployment rises further and
vacancies fall. Wage growth will continue falling from record levels as real income
growth is realised, easing pressure on businesses’ labour costs.

04 Although the UK economy avoided recession, 2023 was still an anaemic year for growth.
In 2024, we expect the UK economy to grow modestly and rebound in 2025 as inflation
moves towards target, allowing interest rate cuts supporting real income growth.

05 There are risks. Households refinancing at higher mortgage rates will reduce discretionary
incomes and, consequently, consumption. Geo-political uncertainties persist, with ongoing
conflicts in Ukraine and the Middle East make energy prices volatile.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Nascent economic recovery

expected in the second half of 2024
The UK economy remains challenged with numerous
headwinds. Most notably, inflation remains elevated. Inflation
failed to fall as quickly as expected in 2023 and, as a result, the
Bank of England increased rates by 175 basis points to 5.25%
over the course of the year, the highest level for 15 years.
For businesses, the prolonged period of high inflation has
resulted in record wage growth and increased labour costs.
This, coupled with the increased debt burden, will continue to
erode profit margins, reduce investment, and dampen
activity. Weak business sentiment is reflected in the UK PMI
surveys, and bankruptcies have risen 25% since interest rates
began climbing.
The consumer sector has also been hit. Confidence is well
below the long-term average, and spending has been flat. We
expect this to continue at least in the first part of 2024,
especially as costly mortgage refinancing will remain a drag on
the economy. However, we expect inflation to continue to fall in
2024, partly due to lower goods prices.
Figure 1: Key macroeconomic forecast figures

2022 2023 2024 (f) 2025 (f)

GDP Growth (%) 4.5 0.4 0.6 1.8
CPI 9.1 7.4 3.4 1.7
Unemployment (%) 3.7 4.2 4.6 4.3
Base Rate (%) 2.8 5.25 4.8 4.0
10-year gilt 3.5 4.5 4.2 3.9

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

2024 Q4

2026 Q4
2025 Q4
2022 Q4

2023 Q4

2024 Q3
2024 Q2

2026 Q3
2026 Q2
2025 Q3
2025 Q2
2022 Q3

2023 Q3
2023 Q2

2024 Q1

2026 Q1
2025 Q1
2023 Q1
6 6
As inflation moves towards its target rate, the Bank of
England will begin cutting rates. We expect the first cuts in
the second half of the year. This will lead to a resurgence in
activity from consumers with an increase in real incomes.
It will also reduce the debt burden on both businesses 5 5
and households, further propelling growth.
Apart from the 2% cut to national insurance, no major tax
reforms were announced in the Autumn Statement. Still,
an election is imminent – the latest it will happen is 4 4
January 2025, but it is more likely to be in 2024 – and as
the Conservatives are currently lagging in the polls, they

Base Rate
GDP Growth
could introduce policies to stimulate growth in the Spring
to enhance their re-election prospects.
3 3
Although interest around artificial intelligence is
increasing, it remains very much in its embryonic stage.
In 2024, we expect companies to start seriously exploring
its potential, with gradual adoption and integration into our
workplaces taking place. While it should lead to efficiencies 2 2
and productivity improvements, this is unlikely to feed
through for several years. We do not expect to see the
large-scale job losses as some are predicting. In fact, in the
short-term, there will be employment opportunities in 1 1
the sector.

0 0
GDP, YoY Growth Bank of England base rate Forecast
Source: ONS via Macrobond, CBRE Research
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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Mortgage rollover
poses biggest risk to growth
The ongoing rollover of fixed rate mortgages throughout 2024 Two years ago, average
poses a risk to household incomes, and therefore our outlook for
growth. The UK has 10.8 million mortgages, the majority of which house prices were around
are fixed, and estimates show less than half have refinanced onto
higher rates. As mortgages shift to higher rates, disposable £263,000. At that time
household incomes fall, reducing their ability to spend, leading to
weaker than expected consumption and, consequently, weaker average mortgage rates
growth. The Bank of England’s November Monetary Policy Report
estimates that less than half of the expected impact of rising
were under 2% and the
interest rates on GDP has materialised. We expect to see further
effects to unfold, which will continue to drag on the economy.
monthly payment for an
Evidence from the Bank of England suggests households have 85% loan would have been
already reduced consumption in expectation of refinancing in
2024. around £915. Fast forward
However, many households currently hold excess savings, accrued
over the COVID lockdowns. These equate to circa 5.5% of nominal
and re-mortgaging that
GDP. There is already some evidence that households have same property would now
rundown their savings. If others follow suit, this could potentially
offset the impact of higher mortgage payments. set the owners back £1,367
There are more acute risks to the forecast, in particular, geo-
political threats associated with the ongoing conflicts in Ukraine
a month. This level of
and the Middle East, which may undermine our assumptions around payment shock will have
falling energy prices. However, our forecasts assume there to be no
major economic disruptions from current conflicts or other a clear feed through to
global events.
households spending ability.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Commercial real estate

more attractive in 2024
Interest rate cuts in H2 2024 will bode well for property yields.
Figure 2: UK all property total returns for a five-year Investment (illustrative)*
After peaking in 2024, these yields are expected to stabilise and
40
compress over the following years, signalling a turning point for
values across all sectors. The industrial and retail sectors will
30
benefit from recovering consumer demand as real incomes grow.
Prime offices will benefit from a relatively shallow peak in
unemployment, as jobs growth continues to surprise on the upside, 20
particularly in London. The residential sector will benefit from
continued strong rental growth, due to lack of development 10

Total Return (%)

activity caused by high borrowing and construction costs.
0
Our synthetic total return forecasts, net of depreciation and
non-recoverable costs, indicate that 2024 will be an opportune
year to invest in commercial real estate. Some key considerations: (10)

1. Long rates have peaked in 2023 but yield decompression will (20)
continue until at least mid-2024, signalling a turning point for
values. However, this will vary by sector.
(30)
2. The high interest rate environment, along with falling values,
has created a lack of viability for debt buyers and contributed (40)
to a thin market; as debt costs fall, this should improve.

2011 Q1
2011 Q3

2014 Q1
2014 Q3
2010 Q1
2010 Q3

2016 Q1

2018 Q1

2020 Q1
2016 Q3
2017 Q1
2017 Q3

2018 Q3

2020 Q3
2012 Q1

2019 Q1
2012 Q3

2015 Q1

2019 Q3
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2022 Q1
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2025 Q1
2013 Q1

2025 Q3
2013 Q3

2021 Q1

2023 Q1
2021 Q3

2023 Q3
2024 Q1
2024 Q3

2026 Q1
2026 Q3
2027 Q1
2027 Q3
3. Equity buyers will benefit from discounted values and based
on our forecasts, will be buying at the bottom of the market,
Time at which investment is made
benefitting from favourable net total returns.
Unlevered Levered (50% LTV)
4. Fewer transactions have made it more difficult to track market
pricing. However, as yields decompress further, the mismatch *Returns are pre-tax and are based on the CBRE Property Forecasts
between buyers and sellers will close, with transactions picking Source: CBRE Research
up throughout 2024.

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 Investment
Real estate investment markets will gradually recover
as the economic backdrop improves, but challenges
remain as the market adapts to investing and financing
in a higher interest rate environment.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Investment returns for real estate should improve in 2024, following 18 months of
challenging market conditions. While the prospects for yield-driven capital growth
appear limited, income returns will underpin an improvement in total returns,
and a falling inflation rate increases the likelihood of positive real returns from
property investments.

02 The divergence in performance across property types is likely to persist in 2024.

The industrial and residential sectors are likely to benefit from better near-term
prospects for rental growth and a greater investor appetite, while the office and
retail sectors will continue to see polarisation based on the quality of assets.

03 Obsolescence of older office and retail assets will be a key challenge for the UK real
estate market next year. The fall in values and rise in financing costs since mid-2022
will reduce opportunities to profitably refurbish or repurpose older stock until market
conditions improve. This could impact progress towards more sustainable, lower
carbon investment portfolios.

04 Real estate investment activity should increase in 2024 relative to 2023. However,
investment volumes in cash terms will take more time to recover as investors trade
at lower price levels in the wake of the downturn. Market conditions will provide
investors with equity the chance to execute counter-cyclical investment strategies.

05 Real estate debt markets will generate further headlines next year as more
loans from the pre-pandemic period approach maturity. Higher interest rates
will constrain how much lenders are prepared to lend at refinancing, and so
some distress will emerge where existing loans cannot be replaced and more
equity from the borrower is not available.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Performance likely to improve in 2024

INVESTMENT PROSPECTS TO BRIGHTEN IN 2024 Figure 3: Capital value indices, 2018–23 OBSOLESCENCE REMAINS A THREAT FOR OLDER ASSETS
Real estate investment performance suffered over the last 18 175 Social and environmental changes affecting the built environment
months as rising interest rates led to yield increases. Investors mean the issue of obsolescence is high on the minds of decision-
150
face challenges from higher borrowing costs and reduced capital makers, especially those in the retail and office sectors.
flows to the asset class. All property total returns have been low 125
Assets that no longer appeal to occupiers or investors, or meet
throughout 2023 and all property capital growth has been negative 100
regulatory requirements, because of their age, location,
over the year to date. 75 or specification, must be repositioned through either conversion
Despite this backdrop, we expect performance in 2024 to improve. 50 or redevelopment. Such expenditure can only be justified from an
Value declines have stopped in some sectors and slowed in others. investment perspective if expected returns outweigh the costs,

Q3 18
Q4 18

Q3 19
Q1 19

Q4 19

Q2 20

Q2 21

Q2 22

Q2 23
Q1 21

Q3 21
Q4 21
Q2 19

Q1 20

Q3 20
Q4 20

Q1 22

Q3 22
Q4 22
Q1 23

Q3 23
Although near-term prospects for any capital appreciation appear including sufficient reward for the risks to investment capital.
limited, income returns will underpin an improvement to the total Industrial Office Retail Several factors have combined to make the conditions more
returns from real estate investment portfolios.
Source: CBRE Research challenging for addressing obsolescence in 2024. The decline in
A declining inflation rate will benefit real estate, enabling the asset commercial real estate values means that, currently, the reward
class to deliver positive real returns once more. High inflation led from redevelopment is reduced in many cases, while increases in
the negative wealth effect from falling values to be greater than the Figure 4: Annualised total returns, 2018–23 construction costs and interest rates have also put the viability
nominal change would suggest. We estimate that capital values at 15 of proposed schemes under pressure.
an all property level have fallen by c. 30% in real terms since mid- 10 This will create concerns for investors with more exposure to older
2022. 5 assets as it will hamper progress towards more sustainable, lower
A key trend in recent years has been the divergence in investment 0 carbon portfolios. Even if investors do not intend to reposition
performance across property types, as illustrated by Figures 3 and -5 assets themselves, it will impact the prices that can be realised
4 for capital value trends since 2018 and annualised total returns -10 on disposals until conditions improve.
over a one-year, three-year and five-year horizon. -15
However, the same factors should benefit existing, prime quality
All sectors were affected by the recent downturn, but performance -20 assets, and we could see the value differential between higher and
One-year Three-year Five-year
in the office and retail sectors has lagged the industrial sector. lower quality assets increase further until market conditions allow
While we do not believe this can continue indefinitely, the industrial Industrial Office Retail more stock to be withdrawn and redeveloped or converted in more
and residential sectors are likely to benefit in the near-term from Source: CBRE Research profitable uses.
better rental growth prospects and a greater investor appetite.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Investors likely to deploy more capital

INVESTMENT ACTIVITY WILL NEED TIME TO RECOVER Figure 5: Transaction volumes, yields and swap rates
We anticipate that investment activity will improve in 2024
relative to 2023, but it will take time for activity to return 25 9.0
to the levels seen before the market downturn. Moreover,
volumes in cash terms will take more time to recover than 8.0
activity. This reflects the lower price levels of investments
transacted at the bottom of the market. 20
7.0
Several factors will affect investment patterns next year.
Firstly, interest rates are key; we anticipate stabilisation and 6.0
then a moderate decline in long-term interest rates in 2024, as 15
the path for policy interest rates becomes clearer. This should 5.0
alleviate the denominator effect that impacted flows to real

%
£bn
estate from multi-asset investors as they sought to rebalance
4.0
towards fixed-income investments during the steep rise in
10
interest rates (and fall in bond prices) in 2022 and 2023.
3.0
Despite this, we anticipate asset disposals in response to
market pressures that have built up in the last 18 months. The
higher interest rate environment has enabled more defined 2.0
5
benefit pension funds to implement de-risking and/or buyout
strategies that involve further restructuring of their portfolios 1.0
from growth assets to liquid fixed-income investments.
Borrowing costs will remain higher throughout 2024 than over 0 0.0

2013 Q1
2013 Q2
2013 Q3
2013 Q4
2010 Q1
2010 Q2
2010 Q3
2010 Q4

2014 Q1
2014 Q2
2014 Q3
2014 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4

2022 Q1
2022 Q2
2022 Q3
2022 Q4
2009 Q2
2009 Q3
2009 Q4

2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2008 Q3
2008 Q4
2009 Q1

2017 Q1
2017 Q2
2017 Q3
2017 Q4

2019 Q3
2019 Q4

2023 Q1
2023 Q2
2023 Q3
2012 Q1
2012 Q2
2012 Q3
2012 Q4

2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2

2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
2021 Q3
2021 Q4
the previous decade and this will affect transaction activity,
reducing the role of leverage in asset acquisition strategies
in the near-term. However, conditions will provide the
opportunity for investors with equity to execute counter- Volume, £bn, LHS Equivalent yield, %, RHS Swap rate five-year, %, RHS
cyclical investment strategies on behalf of their clients.
Source: CBRE Research, Oxford Economics

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

THE REFINANCING CHALLENGE WILL CONTINUE The second challenge is the increase in interest rates. This not
We will continue to see headlines about refinancing of real only means higher interest payments; it also affects the capital
estate loans in 2024. Many loans that reach maturity next that banks can provide to borrowers since the rental income
year will have been originated in a different interest rate from the assets must provide a lender with adequate interest
environment and in very different real estate market cover at refinancing. Ultimately, this means lending at lower
conditions. LTV ratios.

Data from the Bayes Business School UK Commercial Real These challenges will result in a funding gap in many
Estate Lending Report indicates that 2018-2021 saw more situations, where borrowers must inject equity, find new
than £175bn of debt originated against commercial real sources of capital, or sell assets where they cannot bridge the
estate. While the maturity dates for these loans will be gap between existing loans and the debt now available.
spread across the next few years, we anticipate that 2024 Where asset values have fallen steeply, this could lead to
will be a crunch year for many borrowers. distressed sales and lenders will have to make provision for
The first challenge borrowers face is the decline in capital losses. However, we anticipate that challenges will reduce
values across the real estate market, with only a few after 2024 as real estate markets recover and interest rates
sectors having seen significant increases in value in the begin to fall.
years before the downturn. This has resulted in less
collateral to work with at maturity.

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Sustainability
In 2024, UK real estate’s transition towards
net zero will accelerate. This will be increasingly
reflected in asset pricing. The role of infrastructure
in supporting the real estate transition will become
increasingly important and biodiversity will emerge
as a priority issue for developers.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Upgrades in energy efficiency and other sustainability features will be increasingly costed into
asset values. There will be a period of price discovery as the industry improves its understanding
of sustainability CapEx costs and relative investment performance for more sustainable versus
less sustainable assets.

02 Mandatory disclosure requirements are evolving, with more likely to be introduced in the UK,
including TPT Transition Plans. Both occupiers and investors will need to understand how to
gather the relevant data and disclose correctly under these frameworks if they are to attract
capital targeting sustainable activities.

03 The power grid will become an increasingly important barrier to real estate decarbonisation and
renewable infrastructure investment. Understanding where and when grid capacity can support
rising supply and demand will be critical to investment decisions.

04 Physical climate risks to buildings and infrastructure will be of growing importance to occupiers,
investors, and lenders. Questions around insurability and business disruption from climatic hazards
will come to the fore and will increasingly be considered in lending decisions.

05 Regulation and disclosure will begin to turn to nature and biodiversity. After a delay, Biodiversity
Net Gain regulation will be enforced from January 2024. Meanwhile, the new Taskforce on
Nature-related Financial Disclosures (TNFD) will aim to direct investment towards activities with
nature positive outcomes.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

PRICE DISCOVERY FOR LESS SUSTAINABLE ASSETS Figure 6: Forecast of UK electricity demand
In 2024, as the risk and cost associated with less sustainable assets 800
becomes clearer, price discovery is likely to accelerate. This will not
occur in all sectors and markets, but asset classes which are more 700
complicated to upgrade and are experiencing weaker occupier
600

Annual demand (TWh)

demand will likely see a growing divergence in asset value and
performance between more and less sustainable buildings. 500
As price discounts for less sustainable buildings become
400
more pronounced, some will become increasingly attractive
to value-add and opportunistic investors seeking to upgrade 300
building sustainability credentials.
200
SUSTAINABILITY DISCLOSURE REQUIREMENTS 100
Disclosure aims to prevent greenwashing and direct capital towards
more sustainable practices. In 2024, the UK Government and the 0
FCA will make decisions on which additional disclosure frameworks 2020 2025 2030 2035 2040 2045 2050
will become mandatory for UK listed companies. UK economy All Real estate
CBRE expects the IFRS S1, IFRS S2, and TPT Transition Plans Source: Climate Change Committee, Sixth Carbon Budget
to become mandatory, with reporting potentially required as
early as 2025. ENERGY INFRASTRUCTURE AND DECARBONISATION
Both occupiers and investors should use 2024 to become The net zero transition depends on the replacement of fossil fuels by predominantly zero carbon electricity. Figure 6 shows
familiar with these requirements and prepare the resources and how the transition will lead to a 70% increase in electricity demand from UK real estate, and a 119% increase across
data needed to report on them. Using existing guidance to report the economy by 2050.
on these requirements voluntarily before they become mandatory To prepare for this demand, 2024 will see increasing infrastructure investment to modernise the power grid and bring new
could be beneficial, as seen previously with the roll out of renewable energy sources online. 2024 will also see delays to some real estate developments, renewable energy projects,
Task Force on Climate-Related Financial Disclosures and electric vehicle infrastructure unable to connect to the power grid, which is already at capacity in multiple locations.
(TCFD) requirements.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

UNDERSTANDING PHYSICAL CLIMATE RISKS NATURE AND BIODIVERSITY

2023 broke global temperature records, raising concerns Developers in England will be required to comply with
about the increasing frequency and severity of extreme Biodiversity Net Gain (BNG) legislation from January 2024.
weather events. Developers should pay special attention the availability of
local biodiversity units, without which meeting BNG
In 2024, occupiers, investors, and lenders will accelerate
requirements will be more challenging and expensive.
their efforts to understand the physical risks to which they
are exposed, not only in terms of damages to buildings, but Guidance on reporting corporate nature-related risks and
also the disruption to surrounding infrastructure and opportunities was published in Q3 2023 by the TNFD. In
communities which affect building and business operation. 2024, how widely these voluntary disclosures are adopted will
become apparent. TNFD disclosures are likely to increase the
Research suggests around 40% of UK commercial
focus on the biodiversity impacts of existing assets and
property is underinsured. Therefore, many building owners
portfolios, whereas BNG legislation focuses solely on new
and lenders may be more exposed to the financial risks of
developments.
physical hazards in 2024 than they realise.

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 Office
Liquidity in the office investment market will return
when interest rates start to fall in the second half
of 2024. Take-up of office space in UK markets will
improve over the course of the year and prime
rental growth is forecast for most markets.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 The interest rate environment has dominated the office investment landscape since
they started rising in the second half of 2022, severely constraining volumes. This will
ease in the second half of 2024, but investment volumes in the first half will remain
low.

02 Having moved out in 2023, prime office yields in most markets will start to compress
by the end of 2024.

03 The impact of interest rate rises will halt the expansion in the office jobs market.
Following healthy increases in the last two years, we expect office-based employment
to remain largely unchanged in 2024.

04 Despite slowing jobs growth, UK office take-up in 2024 is expected to increase relative
to the levels seen in 2023.

05 Demand for the best quality buildings in the best locations will remain robust in 2024.
This will lead to rental growth in most UK office markets at the prime end of the spectrum.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Investment to remain
subdued; leasing will improve
INTEREST RATE RISES DOMINATE THE MARKET VOLUMES WILL INCREASE IN 2024,
Figure 7: All-in cost of debt (%), prime UK office
The office investment market in 2023 was severely constrained 8 BUT REMAIN LOW RELATIVE TO TREND
by the steep increases in interest rates. The first three quarters The combination of yield stability and falling debt costs will
of 2023 saw £6.5bn invested in the UK office market, with a further stimulate investment activity in the UK office market in 2024,
£3.1bn expected to transact in the final quarter of the year. 7
with a weighting to the second half of the year once interest rates
This would take 2023 office investment volumes to their start to fall. Full-year investment volumes for 2024 are expected to
lowest level in 20 years. 6 increase substantially from 2023 levels
The increase in interest rates caused a repricing of office assets but will remain low relative to the 10-year average level of £22bn.
in the UK during 2023. Prime yields in all office markets tracked 5
by CBRE will end the year higher than they ended 2022, with WEAKER JOBS GROWTH IN 2024
average yield expansion of 75 basis points across the UK office After having seen substantial increases in 2023, office-based
markets. 4
employment growth is expected to halt in 2024 as the impact of

%
Our forecasts suggest the Bank of England base rate has peaked interest rate rises takes effect on the UK economy. Current
and will remain at 5.25% throughout the first half of 2024. However, 3 forecasts suggest zero net growth in office-based employment in
there is the real prospect of rate cuts in the second half of 2024, the UK office markets tracked by CBRE.
with base rates ending the year at c.4.75%. Moving from an 2 Despite the slowing of employment growth, take-up in the UK office
environment of expected rate increases to an environment of market for 2024 expected to increase relative to the levels seen
expected rate cuts will filter through to the cost of debt. The full in 2023, as macroeconomic volatility diminishes.
cost of debt for prime stabilised office assets is forecast to fall 1
from the Q3 2023 level of 6.9% to 6.2% by the end of 2024.
The fall in interest rates will see UK office yields stabilise during 0 2021Q1

2023Q1
2021Q2
2021Q3
2021Q4

2023Q2
2023Q3
2023Q4
2024Q1
2024Q2
2024Q3
2024Q4
2020Q3
2020Q4

2022Q1
2022Q2
2022Q3
2022Q4

2025Q1
2025Q2
2025Q3
2025Q4
2024 and will start to compress from the second half of the year
in most UK office markets.

% Forecast
Source: CBRE Research

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

SUPPLY AND DEMAND Figure 8: Office-based employment growth, UK office markets, 000s jobs
IMBALANCE WILL DRIVE RENTAL GROWTH
There was a clear flight to quality in 2023, with demand for the best 400
quality, best located, most environmentally sustainable buildings
outstripping supply. This partly reflects occupiers using their 350
buildings to attract employees to the office in a hybrid working
world. We expect this trend to continue into 2024 and beyond. 300
Elevated demand for the best quality space has depleted the
development pipeline. Of the space currently under construction 250
across the UK office markets and due for completion in 2024,
a total of 37% has already been acquired by occupiers. 200
The continuing depletion of the development pipeline will

000s jobs
create competitive tension for the best quality buildings 150
and will increase rents at the top end of the market.
100
Rental growth is expected in all UK office markets in 2024
at the prime end of the market. Forecasts for full-year rental
50
growth average c.3% across most UK markets, building on a year
of strong growth in 2023. Most markets saw new record headline
0
rents achieved in 2023 and this is likely to be repeated in 2024.
The best located buildings offering exceptional amenity and access
to outdoor space will see super-normal rental growth. (50)

(100)
2019 2020 2021 2022 2023 2024 2025

000s Forecast

Source: CBRE Research, ONS

22 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Return of creatives
CREATIVE INDUSTRIES WILL RETURN TO THE MARKET IN 2024 Figure 9: Take-up of space by Creative Industries, rolling 12 months, sq ft and as % of total
The creative industries sector, especially those which are US
headquartered, have been the slowest to return to the office post-

2020 Q4
2020 Q3
2020 Q2

2022 Q4
2022 Q3

2023 Q3
2022 Q2

2023 Q2
2016 Q4

2019 Q4
2020 Q1
2018 Q4

2021 Q4
2019 Q3
2019 Q2
2017 Q4

2018 Q3
2018 Q2

2022 Q1

2023 Q1
2021 Q3
2021 Q2
2017 Q3
2017 Q2

2019 Q1
2018 Q1

2021 Q1
2017 Q1
pandemic. As a result, demand for new space from that sector
is significantly down from its pre-COVID norm. Since the end of
lockdown, the share of UK office market take-up represented by the 6 25%
creative industries has been steadily falling. In the 12 months to the
end of Q3 2023, it represented 13% of the market, almost half the level
seen on average pre-2020.
5
However, a combination of factors is leading to an expectation that 20%
2024 will mark a turning-point in demand from the creative and tech
sectors:
4

Millions sq ft
— While retrenching from the standard office market, creative firms 15%
have been focusing their demand on flex space. In 2023, the
creative industries represented 45% of all flex deals transacted by
3
CBRE. Although the outlook for flex demand remains positive in
2024, many creative occupiers use flex space as a short-term
10%
solution. 2024 will be the year that they seek a more permanent
solution 2
— Towards the end of 2023, a number of the largest US tech
companies implemented strict return to office policies. This has 5%
had a positive impact on the office occupancy of many of those 1
occupiers’ UK premises. Some large tech occupiers will need to
acquire new space in 2024 to accommodate the large net increase
in staff they now have relative to the levels pre-pandemic 0 0%
— ‘Office-sceptic’ US-based boards are realising that the malaise in sq ft % of total (RHS)
the office sector in the US is not replicated in Europe, and will be Source: CBRE Research
more inclined to agree to office leasing transactions in 2024 than
they have been at any point since the pandemic

23 CBRE RESEARCH © 2023 CBRE, INC.

 Industrial
& Logistics
A continuation of macroeconomic headwinds will
weigh on occupier activity, creating an increasingly
polarised market. Prime assets will retain appeal,
but the performance of secondary assets is likely
to be more challenged. With little change to the
investment environment anticipated in the short-
term, the stalemate between buyers' and sellers’
expectations of price may start to break for some,
albeit volumes will remain subdued
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Amidst ongoing macroeconomic headwinds creating uncertainty, take-up will remain

subdued. Third-party logistics (3PLs), counter cyclical players such as discounter retailers
and nearshoring businesses are expected to lead demand.

02 Despite a material reduction in occupier expansion, only moderate vacancy rate rises are
anticipated in the year ahead as the volume of space under construction continues to decrease.

03 However, the market will become increasingly polarised. While prime assets are still expected
to deliver rental growth, the performance of secondary assets will be more challenged.

04 As green features become the norm for new facilities and rise up the agenda for many
occupiers, rents and marketing voids of non-compliant properties are expected to come
under increasing pressure in 2024.

05 With market dynamics unlikely to change, investment activity in 2024 will remain
muted versus recent record-breaking years. Given the sector’s increasingly nuanced
performance, investors are encouraged to undertake more granular analysis as part
of their due diligence.

25 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Slowing demand could create

an increasingly polarised market
DEMAND DAMPENED BY MACROECONOMIC HEADWINDS Figure 10: UK logistics average rental growth vs Increases to supply has provided occupiers with more choice,
Against a backdrop of high inflation and rising interest rates, vacancy rate and as a result, some are seeking to relocate to more appropriately
logistics occupiers have taken a cautious approach to expansion in suited units. We anticipate the volume of secondhand stock
35
2023. Throughout the year, the volume of take-up has been around returning to market will increase in 2024, which in part, is as
half that seen in 2022. Decision-making has also been affected by a result of this trend.
30
uncertainty, with deals taking time to progress. However, the development pipeline has slowed for three
Contributing to the reduction in take-up, there has been a shift in consecutive quarters and is 25% down year-on-year. This
demand to smaller and mid-size big box units. Typically, the smaller 25 downward trend is expected to continue into 2024, particularly in
lots are being taken by 3PLs, this sector now accounting for almost the speculative space being delivered. As such, we expect only
moderate vacancy rises, with rates continuing to drift back to pre-

Average rental growth (%)

40% of all take-up. Looking to the year ahead, we anticipate 3PLs 20
will maintain expansion plans, meeting the demand of companies pandemic levels.
seeking to outsource supply chains to achieve savings and greater 15 RENTAL PERFORMANCE WILL BE INCREASINGLY POLARISED
flexibility in their transportation solutions.
Prime rental growth is still evident in several regions, albeit at
Despite ongoing economic challenges, almost 10m sq ft of big box 10 moderated levels versus recent record-breaking years. Figure 10
logistics space remains under offer, indicating market resilience.
highlights the direct relationship between vacancy rates and
Together with 3PLs, in 2024, countercyclical players such as
5 rental growth in the logistics sector. In line with the moderate
discounter retailers or nearshoring businesses are expected to
vacancy rate rises forecast, we anticipate a continued slowdown
lead demand. While many have taken a ‘wait and see’ approach
0 of rental growth.
throughout 2023, it is likely that pressure to make business
decisions will increase in the year ahead. Despite slowing development, the additional stock delivered will still
-5 contribute to an increasingly polarised market. While prime assets
SLOWING DEVELOPMENT WILL MODERATE VACANCY RISES are expected to continue to command rental growth, it is likely
Vacancy rates have risen throughout the course of 2023, now landlords of secondary assets will need to provide increasing
-10
standing above 4.5%. This has in part been driven by subdued 0 2 4 6 8 10 12 incentive packages to attract prospective tenants.
demand, but also by an increase in available stock. In Q3 Vacancy rate (%) CBRE’s latest survey highlights the increasing importance of ESG
alone, 3.5m sq ft of newly completed speculative space amongst occupiers. Features such as charging points for electric
Source: CBRE Research
became available. vehicles, or photo voltaic panels, are now becoming standard for
Note: Data points on chart represent an individual quarter’s performance
new developments. In 2024, rents of non-compliant properties
since Q2 2011 with rent on an annualised basis
are likely to come under increasing pressure.

26 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

INVESTMENT ACTIVITY TO REMAIN SUBDUED VERSUS RECENT Figure 11: UK real estate investment by I&L and I&L % of total investment (RHS)
RECORD-BREAKING YEARS, BUT SELECTIVE OPPORTUNITIES
WILL ARISE

Q4 2020
Q2 2020

Q3 2020

Q4 2022

Q2 2023

Q3 2023
Q2 2022

Q3 2022
Q4 2019

Q1 2020

Q4 2021
Q2 2019

Q3 2019

Q2 2021

Q3 2021

Q1 2023
Q1 2022
Q1 2019

Q1 2021
Industrial and logistics pricing has remained stable throughout
2023. However, with willing buyer and willing sellers’ expectations
of price unaligned, the market has fallen into a stalemate and 6000 35%
investment has slowed. Year to date investment into the sector
including all transactions has totalled £7.1bn, significantly below
2022 levels. 30%

% of UK Total Real Estate Investment

5000
Looking ahead, the base rate is now expected to be held
throughout H1 2024 – with gradual downward adjustments
thereafter. Consequently, pricing recovery is likely to take longer 25%
4000

Million (£)
than initially expected. With little change to market conditions
anticipated throughout 2024, investment activity will remain
subdued versus recent record-breaking years. This said, a steady 20%
supply of assets are still expected to come to market as many look
3000
to fulfil business plans.
15%
Investors seeking to establish or further develop their exposure to
the sector in 2024 are advised to undertake thorough due diligence.
Within the last year logistics performance has become increasingly 2000
nuanced, bids should be informed by the target market’s individual 10%
supply and demand dynamics.
1000
5%

0 0%

Source: CBRE Research

Industrial & Logistics I&L Investment as % of UK Total Real Estate Investment

27 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

ADVANCED MANUFACTURING A NATIONAL

GROWTH PRIORITY
Reflecting economic headwinds, the manufacturing PMI has been
contracting since summer 2022. While weak economic growth looks
set to continue into the year ahead, with Brexit now implemented
and an upcoming election, opportunities for the manufacturing
sector could be on the horizon.
Steps to encourage investment have already begun. In this year’s
Spring Budget, the Government announced plans to launch 12
Investment Zones in key industries that support national priorities.
In July, South Yorkshire was named as the first Zone, focusing on
advanced manufacturing the area has secured £80m of initial
investment, and is set to create more than 8,000 jobs by 2030.
However, according to Make UK, less than a third of the industry
believe special economic zones are an effective means of
generating economic growth, with many often located outside
of target areas.
What could cause significant change? According to Make UK and
With Brexit now
RSM, 44% of companies believe the current UK tax and regulation
systems are unfavourable, and more than a quarter say it is worse
implemented and an
than other major competing countries. Moreover, 87% believe they
are at a disadvantage compared to international competitors
upcoming election,
because the UK lacks an industrial strategy. opportunities for the
While it is likely that logistics occupier activity will remain subdued
in the year ahead, as economic conditions improve the strategies manufacturing sector
set out at the next election could have a meaningful impact on the
real estate strategy of manufacturers and their expansion plans.
could be on the horizon.
28 CBRE RESEARCH © 2023 CBRE, INC.
 Retail
Retail sales are expected to remain subdued
in 2024. While expansion will be on the cards
for some, with trading conditions expected to
remain challenging, modest vacancy rate
rises are anticipated. Retail’s investment
profile will remain diversified – while Retail
Parks will continue to be the top choice for
many, the recent increase in popularity of
other sub-sectors will extend into 2024.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 UK retail sales volumes have remained below 2019 levels throughout 2023. Subdued performance
is expected to continue into 2024, with meaningful growth not expected to resume until later
in the year.

02 Online penetrations have broadly returned to pre-pandemic (2015-2019) trend. Considering

projections of online penetration drivers, we expect to see continued moderate growth,
reaching 28% by the end of 2024.

03 Profit margins are set to remain under pressure in the year ahead. Occupiers will continue
to encourage consumers to utilise their physical store network to maximise profitability.

04 Expansion will be likely for some, albeit the focus will be on ‘safe bet’ locations. Given trading
conditions are expected to remain challenging in the year ahead, modest vacancy rate rises
are anticipated.

05 Retail pricing will remain attractive versus other commercial sectors in the year ahead.
While Retail Parks will remain top choice for many, interest in Grocery and Shopping
Centres looks set to continue.

30 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

PRESSURES STILL LOOM OVER SALES PERFORMANCE Figure 12: UK retail sales volumes (Index 2019 = 100) ONLINE PENETRATIONS HAVE
Despite steadily increasing throughout the course of this year, 106 RETURNED TO PRE-PANDEMIC TREND

Index 100 = 2019

GfK’s consumer confidence metric remains firmly in negative 104 Our recent research, E-Commerce in a Post-Pandemic Era,
territory, highlighting the continued impact of the cost of living 102 highlights the UK’s online penetration has broadly returned to
100
crisis. Weakened confidence has also translated to a fall in spend, 98 pre-pandemic trend. Despite a surge in growth throughout the
and sales volumes have consistently remained below 2019 levels 96 pandemic, online penetrations moderated in 2022 and reached their
throughout the year. 94 lowest point at the start of this year. However, throughout 2023,
92
penetrations have been gradually increasing, and as of October,
Looking ahead to 2024, we are cautious. The base rate is expected

2023 Jan
2023 Feb

2023 Oct
2022 Mar

2022 May

2022 Aug

2023 Mar

2023 May
2022 Apr

2022 Jun
2022 Jul

2022 Sep

2023 Aug
2022 Nov
2022 Jan
2022 Feb

2022 Oct

2023 Apr
2022 Dec

2023 Jun
2023 Jul

2023 Sep
stand at 26.6%. Considering projections of online penetration
to be held throughout H1 2024 therefore consumer confidence is
drivers such as demography, internet usage, culture, and
likely to remain subdued and spending controlled as more
infrastructure, we expect to see continued moderate growth,
households refinance at higher interest rates. Meaningful growth
All Retail (excl fuel) reaching 28% by the end of 2024.
is not expected to resume until H2 2024, when the current market
Source: CBRE Research, ONS
conditions which incentivise savings over spending starts to revert. This said, with margins remaining under pressure, we anticipate
If the base rate is held for longer than anticipated, this could retailers will continue to encourage consumers to utilise their
prolong the current stagnation. Figure 13: UK online penetration rate, 2015-19 trend physical store network to maximise profitability. Following the
and actual (%) early adopters, more brands are expected to introduce fees for
Against a challenging macroeconomic backdrop, where many 40 online returns. Additionally, occupiers will continue to develop
consumers will find themselves prioritising their spending, we
their breadth of in-store services, creating a point of
anticipate asset performance will become even more polarised. 30
differentiation versus online.
Convenience schemes that deliver every day essentials will
20
continue to be well frequented, meanwhile treat spending will be
saved for regional schemes with a diverse and experience led 10
tenant mix. Assets that do not fulfil these types of shopping trips
0
will struggle to retain market share.

Q2 20

Q2 21

Q2 22

Q2 23
Q3 20
Q2 15

Q3 21

Q3 22
Q2 16

Q2 17

Q2 18
Q3 15

Q2 19

Q1 20

Q4 20
Q3 16

Q3 17

Q3 18

Q4 21
Q1 22

Q4 22
Q1 23
Q3 19

Q1 21
Q1 15

Q4 15
Q1 16

Q4 16
Q1 17

Q4 17
Q1 18

Q4 18
Q1 19

Q4 19
Actual Pre-Pandemic Trend
Source: CBRE Research, Euromonitor, Eurostat

31 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

VACANCY EXPECTED TO MODERATELY RISE, While the business rates revaluation which came into effect
BUT PRIME ASSETS WILL REMAIN IN DEMAND this year has boosted occupier affordability in 2023, the
Some high-profile retail administrations have resulted in Chancellor’s recent decision to not scrap an inflation-linked
vacancy rates increasing by 30 basis points – returning to rise will dampen the revaluation’s positive impact in 2024.
Q1 2022 levels of 11.7%. However, this trend is not consistent Despite this, expansion is still expected to be on the cards for
across all assets. some – albeit the increased costs associated with store
The Retail Parks vacancy rate continues to narrow, openings will lead to occupiers focusing on ‘safe bet locations’.
appealing to a broadening tenant base. Strongly aligned Given trading conditions are expected to remain challenging
with consumer trends, we anticipate this retail sub-sector in the year ahead, modest vacancy rate rises are anticipated.
will continue to perform well in the year ahead. While the
average Shopping Centre vacancy rate remains high, in
prime assets, occupancy levels are much greater. Best in
class assets are achieving competitive tension and
subsequent rental growth. Reflecting their sustained appeal,
in 2023 many occupiers have upsized their units in these
locations to deliver the highest quality experiences for their
consumers – a trend we expect to continue in the
year ahead.

32 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

WHILE RETAIL PARKS REMAIN POPULAR,

Figure 14: UK retail investment profile
APPETITE FOR OTHER RETAIL SUB-SECTORS INCREASES
Reflective of the weak economic backdrop, UK retail investment
volumes are down 30% year on year, at £4.76bn. However, pricing
remains stable and attractive when compared to other commercial
property sectors.
Throughout the year, the market has become more diversified, a YTD 2%
trend we expect to continue into 2024. While Retail Parks continue 31% 10% 30% 26%
to account for almost a third of all investment and are expected to 2023
remain the top choice for many – offering
strong fundamentals and relatively small-lot sizes – other sub-
sectors have increased in popularity.
Offering recession-resilient fundamentals, the Grocery sector has
had a strong year, accounting for 26% of investment. Robust
volumes are expected to trade in the year ahead as the steady
supply of stock through sale and leasebacks is complemented by
an investor pool actively seeking secure income assets. Meanwhile,
Shopping Centres have also reported a notable uptick in activity.
While secondary assets continue to attract opportunistic investors 2022 18% 17% 39% 10% 16%
and local authorities, prime activity is also starting to resume.
Market polarisation has solidified the fundamentals of the highest-
quality assets; in the year ahead, we anticipate an increasing
breadth of buyers will explore this segment of the market.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Shopping Centre High Street Retail Park Grocery Other

Source: CBRE Research

33 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

REPURPOSING IS MORE
APPLICABLE TO SOME THAN OTHERS
The UK retail market continues to grapple with a supply and
demand imbalance, creating clear divisions in performance.
For many landlords, repurposing will remain a priority in
2024, particularly given the continued forecasted growth of
online penetrations, and softening of demand due to
macroeconomic conditions. Reallocation of space to other
uses not only increases the likelihood of achieving
competitive tension in the remaining retail space but can
also positively impact footfall and bring
a new profile of customer to an asset.
However, asset strategies should be under constant review
in this fast-changing environment. While the swathe of
CVAs that occurred pre-COVID and shakeout of weak
performers during the pandemic might have once pointed
to repurposing as the solution, certain prime assets are now
seeing a resurgence of occupier demand. Moreover,
considering the elevated cost of capital, assets remaining as
retail might have returned to the most viable option.

34 CBRE RESEARCH © 2023 CBRE, INC.

 Residential
Demand across the residential sectors will remain robust,
with investment forecast to rebound strongly. However,
supply will struggle in 2024 as market participants
continue to face a multitude of challenges across the
planning, regulatory, and funding spectrum.
Residential Sales
The residential sales market will still be challenging
in 2024, but the outlook is more optimistic.
Mortgage rates will remain elevated but have
already fallen from the recent peaks.
The base rate is forecast to start falling in the second
half of the year. This will underpin sales activity and
house prices. On balance, we expect a marginal fall
in house prices and transaction volumes to be broadly
level to 2023.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Although the backdrop will remain relatively challenging in 2024, the outlook is certainly
more optimistic. Falling inflation will drive an economic recovery and facilitate the loosening
of monetary policy in the second half of 2024. This will underpin activity in the housing market.

02 Robust wage growth and falling interest rates will also mean mortgage affordability improves
throughout 2024. The mortgage market is also becoming increasingly more competitive,
which will benefit homebuyers and those remortgaging next year.

03 On balance, home sales won’t rebound significantly, but the improved backdrop will underpin demand.
Transaction volumes will still be below the long-term average in 2024 but remain broadly level to 2023.
Buyers' budgets will recover to an extent, albeit this won’t support house prices at their current level,
with a further 1% fall forecast in 2024.

04 In the short-term, new home completions look set to rise in 2024 compared with 2023. Still, several
persistent challenges will result in a falling planning pipeline next year. However, the lower rate of
construction cost inflation will at least provide some stability and improve development viability.

37 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Outlook remains challenging

but more optimistic
The economy will start to recover in 2024 and we forecast inflation Figure 15: Average mortgage loan and loan-to-income ratio The prospect of falling mortgage rates is positive news for the
will fall to 2.8% by the end of next year. This is a boon for the 850,000 two and five-year fixed mortgages renewing next year.
housing market as it will ease the pressure on interest rates. £260,000 3.6 And while payments will still rise, the prevailing rates are still well
We forecast the base rate to remain at its 5.25% peak in the first below what these borrowers would have been originally stress-
half of 2024, and then fall back below 5% by the end of the year. tested at. In addition, strong house price growth in recent years
£250,000 3.5 means those remortgaging will benefit from lower loan-to-values,
This improved outlook and more stable interest rate environment is
and hence lower mortgage rates. Other tools, including extending
already resulting in falling mortgage rates. The available financing
the mortgage term, will also be utilised to keep repayments as low
has also improved, with the number of fixed-term mortgage £240,000 3.4 as possible.
products increasing by 60% in 2023. This means the market will be
much more competitive in 2024. Some lenders, for example, are now The improved outlook moving into 2024 will underpin demand
offering mortgages at sub-5% in a bid to gain market share. and house prices. We forecast transactions to stay below their
£230,000 3.3
long-term average, but to be broadly level with 2023. And although
Falling mortgage rates will translate into higher loan-to-income
affordability will improve, prices will need to continue to correct to
ratios in 2024. These were eroded at the start of 2023 as the base
accommodate buyers’ budgets. We forecast a moderate fall in UK
rate continued to increase but have now stabilised. However, the £220,000 3.2
house prices of 1% in 2024.
average loan size has increased, with the latest data inferring a
purchase value of £334,000, surpassing the level at the start of
2023. At present, this is symptomatic of a market weighted £210,000 3.1
increasingly towards higher earners, but it also partly reflects
strong wage growth.
Overall, this will support higher loans and boost buying power in £200,000 3.0

Jul

Jul
Sep
Mar

Nov

Mar
May

May
Jan

Jan
2024, particularly if base rate cuts come in the second half of the
year as forecast. 2022 2023
Average mortgage advance, LHS
Average loan-to-income ratio, RHS
Source: UK Finance

38 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

HOUSING SUPPLY WILL CONTINUE TO COME UNDER PRESSURE Figure 16: Private new home starts and material/construction cost inflation (actual and forecast)
Just under 90,000 homes started construction in H1 2023, up 8% from the
previous year. This indicates an improving short-term supply outlook of new home 70,000 35.0
completions in 2024, albeit this is still significantly below the estimated requirement.
60,000 30.0
However, the housebuilding sector will continue to be hindered by several challenges,
which will impact the future pipeline of new homes in 2024.
25.0
Planning remains a key challenge. New fire safety regulations are a necessity but will 50,000
nevertheless stall planning activity throughout the year. In addition, the lack of local 20.0
development plans mean councils will continue to be saturated with speculative 40,000
planning applications. This will consume limited resources and contribute to delays. 15.0
In London for example, it took an average of almost 18 months for a planning 30,000
application to be granted permission in 2023, up from just over six months a decade 10.0
ago. This has contributed to new home permissions falling almost 60% across
the capital in 2023. 20,000
5.0
The higher cost of debt and construction will also continue to impact viability.
10,000 0.0
Almost two-thirds of respondents to the RICS Construction Survey now cite ‘financial
constraints’ as a key factor limiting activity. This has risen consistently since the start
of 2022. However, the pace of cost inflation should fall back in 2024, providing an 0 -5.0
element of stability. We forecast materials price inflation to average 3% in 2024, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
down from a peak of 23% in 2022. This will drive the overall rate of construction cost 2019 2020 2021 2022 2023 2024
inflation down to an average of 2% in 2024, compared with the 2022 peak of 10%.
Overall, the delivery of new homes may surpass 2023, but some key challenges Private new home starts, LHS Materials price inflation - New work (%), RHS
will continue to impact the future planning pipeline throughout 2024.
Construction output price inflation (%), RHS

Source: Department for Levelling Up, Housing and Communities, Department for Business and Trade, CBRE Research

39 CBRE RESEARCH © 2023 CBRE, INC.

Build-to-Rent (BTR)
We expect the acute supply and demand imbalance
across the rental market to worsen in 2024.
This reflects the higher interest rate environment,
with many private landlords selling their properties.
This has also contributed to pricing uncertainty and
lower levels of BTR investment. However, BTR
operational metrics remain extremely positive and
rent growth is strong.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 The supply and demand imbalance across the private rented sector will continue to deteriorate
in 2024. Already low supply is being further compounded by a mass sell-off of rental homes.
This is a result of the higher interest rate environment, and previous tax changes, which has
made buy-to-let increasingly unviable.

02 The number of BTR homes starting construction in 2023 fell to less than half the level recorded
in 2022. This partly reflects subdued institutional investment into the sector, coupled with high
construction costs, labour shortages, and more expensive debt. This will translate into a
significantly lower level of BTR completions in 2024.

03 A persistent high level of demand and falling supply will continue to support a strong level
of rental growth in 2024. Average rents increased by around 6% in England in 2023, we expect a
similar rate of growth in 2024. The BTR sector will continue to outperform the headline level of
growth.

04 The start of the economic recovery will boost investor confidence in 2024. This will be coupled
with a more stable interest rate environment, which will offer a greater degree of pricing
certainty. The reduced level of construction cost inflation will also improve the viability
of forward funding opportunities. As such, investment into the sector will rebound strongly
next year.

05 Yields will also be more stable in 2024. A further expansion is expected at the start of the year,
but this will continue to be mitigated by strong rent growth resulting in only a minor adjustment.

41 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

PRICING CERTAINTY WILL UNDERPIN INVESTMENT IN 2024 Figure 18: Net tenant demand and change in rents Specifically, investment into Single-Family BTR will continue to
Our 2023 UK Investor Intentions Survey highlighted that appetite be strong in 2024. Despite overall BTR investment falling in 2023,
100 6 the Single-Family Housing (SFH) sector deviated from the trend,
for BTR remained strong. The challenging environment negatively
impacted investment throughout 2023, but this is expected to recording the highest level of investment so far.
90
rebound strongly in 2024. However, the sector could face challenges next year. Generally,
5
As well as the positive return outlook, investors will be buoyed by 80 investors are not taking development risk and are fully reliant on
the broader economic recovery and interest rate stability, which housebuilders to deliver homes. Currently, the challenging sales
will provide greater pricing certainty. The viability of forward 70 market is benefitting the sector as housebuilders aim to de-risk
4
funding opportunities should also improve as construction costs their schemes through a SFH strategy. However, this may change
60 as conditions in the sales market start to improve in 2024. This
stabilise, and inflation recedes.
could be a challenge for the sector, meaning investors will need
Investment activity could also be boosted by the significant 50 3 to find alternative routes to market.
number of stabilised assets coming to the market in 2024. A
challenge is that these buildings will only contain one stair core, 40 BTR yields, having expanded throughout 2023, will be more stable
which shrinks the investor pool considerably. Albeit this may 2 in 2024, particularly considering the interest rate outlook. A further
improve as greater clarity emerges on the new regulations. 30 expansion is expected in early 2024, but this will be limited and
continue to be mitigated by strong rental growth. H1 2024 could
However, investors will need to be confident that we have reached 20 provide a strong indication of pricing, as fund redemptions lead
the peak of the interest rate cycle, which means activity could be 1
to the sale of several good-quality stabilised assets.
weighted towards the second half of 2024. 10
Overall, as at Q3 2023, there was an estimated £2.1bn of
0 0
transactions under offer and £3.5bn of opportunities on the Jul-20

Jul-21

Jul-22

Jul-23
Oct-20

Oct-21

Oct-22
Jan-20

Jan-21

Jan-22

Jan-23
Apr-20

Apr-21

Apr-22

Apr-23
market. This provides a strong foundation to support
investment activity throughout next year.
Net tenant demand (% balance of respondents), LHS
Annual change in rents (%), RHS
Source: RICS, ONS

42 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Acute supply and demand imbalance to persist

Across the broader private rented sector, the supply and demand imbalance will Figure 17: Net reduction in outstanding Buy-to-Let loans and Bank of England base rate
continue to worsen in 2024. Higher interest rates and tax changes have made
buy-to-let increasingly unviable in recent years, with many landlords opting to leave 0 6
the sector. An estimated 150,000 rental properties have now been sold since
the start of 2022, when the Bank of England began raising the base rate. -20000
In addition, BTR delivery is being hampered by high construction costs, labour 5
shortages, and more expensive debt. New fire safety regulation, including the need for -40000
a second staircase in tall buildings, will also impact viability and the supply
of BTR homes throughout 2024. The failure of several contractors, with the potential 4
-60000
for additional filings in 2024, will also compound the lower delivery of BTR stock.
Recent data shows that BTR construction starts in H1 2023 were less than half of the -80000 3
level recorded in the same period of 2022. This will result in a significantly lower level
of completions in 2024.
-100000
In contrast, demand from tenants will remain strong. The Royal Institute of Chartered 2
Surveyors (RICS) continues to report an extremely high level of tenant demand -120000
across the sector. And our data shows consistently high occupancy levels, averaging
97% across operational buildings. Operators are also reporting strong lease-up rates. 1
-140000
These factors mean rent growth will continue to be strong. The latest data from the
ONS recorded average rents in England rising by 6% year on year, the highest on -160000 0
record. We expect a similar rate of growth to persist in 2024. And, as illustrated by our

Feb

Apr

Jun

Jul

Sep

Oct

Dec

Feb

Apr

Jun

Jul
Mar

May

Nov

Mar

May
Aug
Jan

Aug
Jan
inaugural Multifamily Index, the BTR sector will likely outperform the broader headline
level of growth. 2022 2023

Cumulative change, LHS Base rate (%), RHS

Source: UK Finance, Bank of England, CBRE Research

43 CBRE RESEARCH © 2023 CBRE, INC.

Affordable Housing
Demand for Affordable Housing will remain strong.
The sector will continue to face challenges, but
investment activity is expected to rebound strongly
in 2024.
This will be bolstered by For-Profit Registered
Providers (RPs) unencumbered by legacy stock. In
contrast, traditional RPs will need to invest in the
safety and quality of their existing portfolios rather
than expanding them.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 The sector’s strong fundamentals, coupled with the improving macroeconomic backdrop,
will mean activity in the Affordable Housing sector rebounds strongly in 2024. This will be
driven in large part by For-Profit RPs that do not need to retrofit and upgrade existing stock.

02 However, the supply of new homes will continue to struggle as most traditional RPs focus
on their existing portfolios. This will require a significant level of CapEx, which will result in a
further reduction in development programmes across the country. In addition, a challenging
funding backdrop will create further obstacles for new supply from traditional providers.

03 In the absence of any new Government scheme to assist homebuyers in 2024, more private
units will continue to switch to shared ownership. This will boost supply across this tenure.
However, new regulation of this market segment means some RPs will need to re-evaluate
their business models.

04 The challenges facing the sector will continue to drive mergers and
acquisitions throughout 2024, with several already in the pipeline.

45 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Figure 19: Registrations of affordable housing providers

Investment activity will rebound strongly as we head into 2024, in line with falling
inflation. This will be largely driven by For-Profit RPs that are unencumbered by the 40
need to retrofit legacy stock and can continue to expand their portfolios. In addition,
it appears increasingly unlikely that another rent cap will be introduced, which will
35
provide certainty and underpin investor confidence.
However, there are some headwinds facing the sector. Many providers will struggle
to increase supply in 2024. This is particularly true for the traditional RPs that need 30
to focus on improving the safety and quality of their existing stock. Current estimates
suggest that repair and maintenance costs across the sector have increased by

Number of providers
£1.5bn in just four years. These pressures will continue into 2024, with the 25
Regulator of Social Housing estimating that capitalised repairs and maintenance
costs will increase by a further 30% from 2022/23. This is coupled with the fact that
construction costs have increased significantly. As a result, the G15 group of London 20
Housing Associations confirmed that its members are reducing development
programmes by up to a third. This will be mirrored across the country, translating
into a lower delivery of new affordable homes in 2024 from traditional RPs. 15

The funding backdrop will also continue to hamper traditional providers in 2024.
Specifically, the higher cost of debt is adding pressure to RPs’ finances, meaning more 10
are seeking loan covenant waivers from lenders. In addition, the sector’s credit rating
is on a downward trajectory, meaning less access to investors.
5

0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Local authority Non-profit For-profit

Source: Regulator of Social Housing

46 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

New shared ownership regulation could also have an impact Despite this, in the absence of any other government schemes,
on existing business models by lowering rental growth an increasing amount of private sale units will continue to be
prospects. The annual rent increases of new shared switched to shared ownership, which will boost the supply of
ownership homes will change from its current measure of these homes.
Retail Price Inflation (RPI) plus 0.5%, to a new cap of
However, these challenges will continue to drive mergers and
Consumer Price Inflation (CPI) plus 1%. Based on historic
acquisitions throughout next year as RPs seek to expand and
data over the last decade, this would equate to an average
enhance their ability to deliver new homes. Some
annual rent increase 60 basis points lower than the
organisations have already signalled their intentions, with
current RPI measure. In addition, the floor for shared
Sanctuary and Johnnie Johnson Housing, for example,
ownership rent increases moves from 0.5% to 0%. This
announcing that they are in early-stage discussions. A final
means that rents cannot be increased if CPI is -1% or lower,
decision on the merger between Stonewater and Mount Green
albeit this scenario is very unlikely. The resulting lower rent
is expected at the end of next year.
growth across shared ownership may mean some RPs will
need to re-evaluate the performance of their portfolios.

47 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

STOCK RATIONALISATION TO BE A MAIN THEME IN 2024

The benefits offered from acquiring existing tenanted stock
mean the stock rationalisation market has increased
significantly in 2023. This will continue to be a major feature
of the sector in 2024 as RPs seek cost-effective strategies
to deliver on their performance and financial objectives.
The new Tenant Satisfaction Measures (TSMs), that came
into effect in April 2023, may also play a part in driving this
rationalisation. These are provided to the Regulator of Social
Housing to allow them to assess which landlords may need
to improve their provision to tenants. The current timeline
seeks to publish the first year of TSMs in the autumn of
2024 and, as such, may drive further stock rationalisation of
low scoring assets.

48 CBRE RESEARCH © 2023 CBRE, INC.

Purpose-Built Student
Accommodation (PBSA)
The PBSA sector continues to be defined by an
acute supply and demand imbalance. Student
numbers in the UK are at record highs, which is
driving strong demand for accommodation.
However, the supply of available beds is not keeping
pace with this demand and is increasingly limited by
planning constraints and viability challenges. As a
result, rental growth prospects for the sector
remain strong.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 A record high student population and broader demographic trends will continue to
drive strong demand for PBSA next year. The fall in demand from students from the
European Union (EU) will continue to be offset by increased demand from
international students outside the EU.

02 Falling A-level grades and tighter entry requirements will continue to drive an
increase in the number of students attending lower and medium tariff universities.
This will result in additional demand for PBSA where these universities are located.

03 The supply of new PBSA will continue to be limited by several factors

including onerous planning requirements and the need to modernise existing
stock, further compounding the current shortfall of 580,000 beds. Supply will be
further constrained by the availability of Houses for Multiple Occupation (HMO),
which are a key accommodation option for many students.

04 Investment activity across the sector has been robust and will further improve
in 2024. This will be underpinned by robust operational metrics and the strong
return outlook.

50 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Increased demand at medium and lower

tariff universities
With the UK student population currently at its highest ever level, PBSA demand is Figure 20: Full-time student population, UK
set to remain strong in 2024. This will also be underpinned by broader demographic
trends. The Office for National Statistics forecasts that the population of 18-year-olds 2,800,000
in England will increase by another 5%, or 30,000 people, in 2024.

Demand for university places will also be robust in 2024. The Universities and 2,600,000
Colleges Admissions Service (UCAS) showed that while acceptances were down
slightly from the previous academic year, they are still 24% higher than the pre-
pandemic level in 2019. The fall in students from the European Union (EU) will also 2,400,000
continue to be offset by strong demand from international students outside the EU.
This is reflected in data from the UCAS, which shows that applications from
2,200,000
international students overall rose by 2% for the 2023/24 academic year. This was
entirely driven by non-EU students, which increased by 4% year on year to 116,000.
Overall, this will translate into a continued increase in university participation rates 2,000,000
and strong demand for PBSA.

However, there has been a shift from higher to medium and lower tariff universities. 1,800,000
This is being driven by a general fall in A-level grades following the post-pandemic
return to exams, along with some universities tightening entry requirements due to
1,600,000
over-recruitment throughout the pandemic. We expect this trend to continue over

2012/13

2015/16

2020/21

2027/28

2033/34
2011/12

2013/14

2019/20

2029/30

2031/32

2034/35
2014/15

2022/23

2025/26
2010/11

2016/17

2018/19
2017/18

2021/22

2023/24
2024/25

2030/31

2032/33
the next few years and will result in additional demand for PBSA beds in areas where
these medium and lower tariff universities are located.

Full-time student population (actual) Full-time student population (projection)

Source: Higher Education Statistics Authority Student Records 2010/11 – 2021/22

Note: Projections are provided by the Higher Education Policy Institute that forecast an additional 358,000 university places needed by 2035.

51 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Figure 21: Supply of PBSA beds

HIGH OCCUPANCY AND A
STRONG RETURN OUTLOOK WILL DRIVE INVESTMENT 2027 1477

Challenges in the private rented sector will also place upward

demand pressure on PBSA in 2024. Our research highlighted
2026 4024

that an estimated 400,000 private rented homes have been 2025 7472
sold in recent years. This will contribute to a shortage of Houses
for Multiple Occupation (HMO), which form a key 2024 12473
accommodation option for many students.
The shortage of new PBSA development will carry forward into 2023 8055 2299
2024 as completions in 2023 have been at an all-time low,
compounding an estimated shortfall of 580,000 beds nationally. 2022 19655
Several factors, including high construction costs, increasingly
onerous PBSA planning requirements, higher debt costs, and 2021 22215
changes in building regulations, will continue to hinder new
development throughout 2024. Any new supply will be focused 2020 28483
on a handful of towns and cities with strong occupational
markets and where viability is less challenging. 2019 33177

2018 36290

2017 34568

2016 30816

2015 36700

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Beds delivered Beds to be delivered (where known)

Source: Student Crowd, CBRE Research

52 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Supply will also be further constrained as some older Investment will also be buoyed by the strong operational
university stock will need extensive modernisation to meet metrics and income growth prospects for the sector.
student expectations and remain competitive. As a result, Occupancy for the 2023/24 academic year is the strongest on
there will be a greater opportunity to reposition legacy record, and many schemes were at least 98% booked by
PBSA in 2024, particularly where a new build is unviable. Spring 2023. The same is expected next year, which is
underpinning strong rent growth projections. Unite is
Despite the challenging environment, PBSA investment was
predicting rent growth of 5%+ for the 2024/25 letting cycle.
robust in 2023. As debt markets stabilise, inflation recedes,
and the economy recovers, PBSA investment will further Investors will also have a greater focus on specific
improve in 2024. opportunities next year. For example, the management of
highly reversionary assets offers the potential for strong
returns and will drive investment in certain markets with
robust fundamentals.

53 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

SAFETY REGULATIONS AND ENERGY

EFFICIENCY ARE KEY CHALLENGES IN 2024
New Building Safety regulations and proposed energy
efficiency standards will be two key challenges for the PBSA
sector in 2024. With two-thirds of the UK’s PBSA stock built
before 2015, most buildings won’t meet certain measures
stipulated by the latest safety regulations. For example, the
need for a second staircase if the building is taller than
18 metres.
In addition, investors and lenders are increasingly targeting
energy efficient assets to meet their own environmental and
sustainability strategies.
From an investment perspective, these factors will channel
investment away from older, less efficient assets which do
not meet modern regulations and towards forward funding
opportunities for new development. For owners, these
measures will necessitate considerable CapEx to upgrade
and refurbish their existing buildings next year.

54 CBRE RESEARCH © 2023 CBRE, INC.

 Operational
Real Estate
Trading performance across many OPRE sectors –
particularly hospitality and healthcare – has been strong.
Enhanced trading and softening pricing, driven by cost
of capital, have created pockets of value across the
markets. The outlook for 2024 looks positive, with
significant volume of transactions already building
throughout OPRE markets.
Senior Living
The UK Senior Living market is still in its infancy
and the penetration rate is still low compared with
other mature markets. Investors will be attracted
to structural changes in demand and changes to the
UK care system.
The sector is unlikely to see yield compression until
the sector begins to mature. We anticipate a slow
start to 2024, followed by a steady increase
in sales rates in the Senior Living market over the
next 12–24 months.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Despite a slowdown in the housing market, demand for age-appropriate housing is rising.
We anticipate that the sales velocity in the Senior Living market will begin to recover over
the next 24 months.

02 With the success of existing rental product offerings, we anticipate an increase in

appetite from investors in the sector. Affordability will be a key driver for the sector
if more schemes are developed for a mid-market offering.

03 A key focus for operators and investors going forward will be on occupier need, particularly
on providing community, care, and wellbeing across schemes, rather than the focus being
on the real estate.

04 We anticipate more authorities will see senior housing more holistically in providing
a wider social benefit and contributing to their housing needs.

57 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Cautious optimism in
the Senior Living market
STEADY RETURN IN SALES Figure 22: UK 65+ Population house price distribution
The UK Senior Living market is still in its infancy and the
1,600,000
penetration rate is a fraction of what is seen in other mature
markets. According to the Housing Learning and Improvement
Network (Housing LIN) most of the elderly in the UK are living in 1,400,000
mortgage-free residential dwellings that traditionally are sold prior
to moving into a retirement living unit. The increasing number of
over 75s is driving demand for retirement housing. However, 1,200,000
developers are currently targeting those with housing wealth over
£500,000. This is further increasing the lack of supply in the mid-
market. We anticipate a slow start to 2024, followed by a steady 1,000,000

No. of people
increase in sales rates in the Senior Living market over the next 12 –
24 months.
800,000
INCREASED TENURE FLEXIBILITY
Take up of rentals has grown substantially over the last five years, 600,000
which in turn has attracted institutional and fund investors who
are seeking to diversify their portfolios, into the market. Rental
offerings may enable mid-market operators to develop in mid- 400,000
affluent locations, where a for-sale model may not be viable.
Affordability will be a key driver for the sector if more schemes
are developed for a mid-market offering. 200,000

£250-300
£150-200

£450-500

£500-600
£300-350

£900-1000
£100-150

£350-400

£400-450

>£1000
<£100

£200-250

£700-800

£800-900
£600-700
Source: CBRE Forecasts 2020 2022

58 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

GOVERNMENT TASKFORCE REPORTING IN 2024 FOCUS ON URBAN DEVELOPMENT AND AMENITIES

Commissioned in May 2023, the Government’s Older Senior living developers are moving towards more central
People’s Housing Taskforce is accelerating locations so seniors can be closer to public transport and
recommendations to stimulate growth and investment amenities. In addition, there will be a new spotlight on tailoring
in the sector, particularly within the mid-market. While the communal living space and services provided by the
there will be a General Election in 2024, it is hoped any operators that complement the needs of seniors, focusing
new government will embrace the recommendations put on the needs of the occupiers rather than purely on the
forward. The focus of the taskforce will be on the real estate.
consumers, the planning system, investment into the
sector, and fiscal incentives. LAND
Senior living operators struggle to compete with the
mainstream commercial and residential developers for land,
which limits their ability to expand. At present, there is an
inconsistency in how planning authorities view senior living
developments, treating them as mainstream residential
schemes rather than housing with care. We anticipate more
authorities will see senior housing more holistically
in providing a wider social benefit and contributing
to their housing needs.

59 CBRE RESEARCH © 2023 CBRE, INC.

Hotels
Travel demand will be strong in 2024.
While consumers’ disposable income will remain
somewhat constrained by high inflation,
international tourist numbers are expected
to remain high.
Inflation will also impact labour costs, which will raise
operational costs. As a result, we expect Average
Daily Rates (ADRs) to increase to maintain
profit levels.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Demand from tourism will be strong in London, which remains the key
hotel destination in the UK. Other key cities likely to attract high tourism
numbers are Edinburgh and Dublin.

02 2024 could be the first post-COVID year that sees occupancy rates
surpass 2019 levels. Currently, UK occupancy outside London has
been lagging on pre-pandemic levels, but expected demand
for domestic leisure will help hotel occupancy.

03 The strong Average Daily Rate (ADR) and Revenue per Available Room
(RevPAR) reported by UK hotels is expected to continue into 2024.

04 Yields are expected to flatten once pricing meets an equilibrium

among buyers and sellers. The investment volume is expected to be
lower than previous years due to the high cost of financing. However,
investment activity will resume once interest rates reach a peak and
refinancing occurs.

61 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

Recovery brings cautious optimism

to hotels sector
RECOVERY OF INBOUND TOURISM
Figure 23: Heathrow passenger numbers, seasonally adjusted
Tourism numbers have continued to recover this year, with Heathrow passenger numbers Forecast
above 2019 levels. This has been a welcome boost for the sector considering the challenging 150

Index (100=Dec 2019)

economic environment. In 2024, we expect to see continued growth in inbound tourism stays,
particularly in London, which will continue to cement its reputation as a global destination 100
for business, entertainment, and events. 50
0
DOMESTIC LEISURE

Jan 2015

Jan 2016

Jan 2017

Jan 2018

Jan 2019

Jul 2020

Jul 2021

Jul 2022

Jul 2023

Jul 2024

Jul 2025

Jul 2026

Jul 2027
Jul 2015

Jul 2016

Jan 2020
Jul 2017

Jul 2018

Jul 2019

Jan 2021

Jan 2022

Jan 2023

Jan 2024

Jan 2025

Jan 2026

Jan 2027
There has been strong demand for domestic leisure destinations. This has particularly
benefitted regional UK areas including coastal towns. One of the main drivers of domestic
tourism has been the UK’s weak pound, which has led to many households opting for holidays
within Britain. With household finances remaining squeezed into 2024, the staycation trend is Passenger Numbers, Seasonally Adjusted
likely to continue next year. Source: Heathrow Traffic Statistics
KEY PERFORMANCE INDICATORS
The hotel sector has experienced strong trading performance, with Average Daily Rate (ADR) Figure 24: UK Hotel KPI performance
and Revenue per Available Room (RevPAR) well above 2019 levels – up 20% compared to 150

Index (100=2019)
the corresponding month in 2019. Heading into 2024, it remains to be seen if operators can
continue the high ADR levels achieved since the COVID-19 recovery. In particular, the 100
challenge will be for ADR to keep pace with cost inflation. Regional markets may find this
particularly challenging due to the reliance on demand from domestic visitors. 50

OPERATIONAL PERFORMANCE 0

Dec 2020

Dec 2022
Jun 2020

Dec 2021

Jun 2022

Jun 2023
Dec 2017
Mar 2018

Dec 2018
Mar 2019

Jun 2021
Dec 2019

Sep 2020

Sep 2022
Jun 2018

Jun 2019

Sep 2021
Sep 2017

Sep 2018

Sep 2019

Mar 2020

Mar 2021

Mar 2022

Mar 2023
High levels of inflation has caused operational costs to rise, particularly in utility costs
and payroll PAR, which has risen 17% from last year. Despite the rise in costs, year to date
Gross Operating Profit PAR is up 18% for the UK on a year on year comparison. 2024 is still
expected to see relatively high inflationary levels, which means operators will have to be Occupancy ADR RevPAR
proactive with revenue management and stringent cost control. Source: HotStats

62 CBRE RESEARCH © 2023 CBRE, INC.

 Intelligent Investment Real Estate Market Outlook 2024 | UK

INVESTMENT MARKET Figure 25: UK prime hotel yields Figure 26: UK hotel investment volume
The rise in interest rates has tempered investor transaction activity within the UK
hotel market. However, we think the interest rate cycle has reached its peak and 9% 8.0
expect rates to remain at this level for at least the first half of 2024. Once financing
stabilises, yields should begin to stabilise too, which should end the ongoing 8%
buyer-seller pricing disparity and result in more hotel investment activity. 7.0

7%
2024 TREND 6.0
As operators realise the impact technology can play in hotel operations, it is likely 6%
to play a central role in benefitting customer travel experience. With artificial 5.0
intelligence (AI) consistently improving and becoming more prevalent in use, AI has 5%
the possibility to improve the personalisation of customers’ experience. For instance, 4.0

Billion (£)
online bookings would recognise the guest’s preferences for their stay and propose 4%
suitable room suggestions. Guest check-in could become more personal too,
3.0
with staff already having knowledge of guest hospitality preferences. 3%

2.0
2%

1% 1.0

0% 0.0

Jul 2014

Apr 2023
Aug 2018

Oct 2019

Feb 2022
Sep 2022
Jan 2018
Feb 2015
Sep 2015
Apr 2016

Jun 2017

Dec 2020
May 2020

Jul 2021
Nov 2016

Mar 2019

2020
2021
2022
2023
2024
2013
2014
2015
2016
2017
2018
2019
London Provincial UK London Forecast
Source: CBRE Research Source: CBRE Research

63 CBRE RESEARCH © 2023 CBRE, INC.

Healthcare
Investment conditions will remain challenging
in 2024.
Still, opportunities may exist for investors who have
a detailed understanding of the healthcare sector
which is currently characterised by strong operational
performance, rising demand and attractive
lease features.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 The flight to quality for healthcare assets will continue in 2024 as real estate investment
remains challenging in a high interest rate environment. Stronger operational performance,
particularly around occupancy and fee rate rises, is creating attractive opportunities for
experienced healthcare investors able to price operational risk in a more dynamic market.

02 Investor focus has pivoted from income driven strategies to more value-add, yet investment volumes
remain weak, while initial yields are at a 15-year high. The tighter lending market means that real
estate investors are looking at opportunities where real estate can be the catalyst for operational
improvement in care home businesses. Higher yields, strong underlying cashflows, better understood
ESG characteristics, and ability to create value through CapEx, is likely to drive investment in 2024.

03 Healthcare development activity is slowing due to increasing build costs, lower tolerance
for risk, a more challenging planning environment, and the increasing cost of debt. This
will exacerbate the demand and supply imbalances across the healthcare sector moving
forward. This imbalance may explain the fact that residual land values continue to hold up.

04 Independent sector operational performance will continue to strengthen as demand is

driven by the UK’s ageing population, increased private/public sector integration, and
rising NHS waiting lists.

05 Staffing will remain a challenge across all healthcare subsectors with the ongoing nursing
shortage across Europe. However, in the UK, the successful sponsorship of overseas staff
will continue to relieve pressures.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Operational performance continues to improve

PRIVATE ACUTE HOSPITALS Figure 27: NHS elective activity by independent sector providers
Operational performance continues to improve as growing NHS waiting times
lead to increased private/public sector integration and patients seeking faster 450,000
treatment times. We expect private patient volumes to continue to increase in 2024,
with 7.75 million people waiting for NHS treatment, and over 40% waiting for more 400,000
than 18 weeks.
350,000
Greater willingness from the NHS to engage with independent providers will
strengthen the private acute hospital market and could lead to opportunities 300,000
for investment.
As with other healthcare sectors, a shortage of nurses across the UK and Europe 250,000
remains a key challenge and is a risk to operational performance moving forward.
200,000
As the UK’s ageing population with more complex care needs seeks increasingly
specialist treatment, we have seen the emergence of private acute sectors such as
150,000
diagnostics, cancer care and post-acute rehabilitation. In line with patient demand,
we expect operators and investors will show more interest in these sectors in 2024. 100,000
These emerging sectors also represent a good opportunity to ease pressure
off the NHS. 50,000
PRIMARY CARE
0
Primary care remains an important part of delivering healthcare services in the UK,

3/13/2022
8/29/2021

8/28/2022
9/26/2021

11/21/2021
12/19/2021

05/08/2022

02/12/2023

8/27/2023
06/05/2022

7/31/2022

12/18/2022
1/16/2022

05/07/2023

07/02/2023
08/01/2021

10/24/2021

04/10/2022
2/13/2022

07/03/2022

11/20/2022
9/25/2022
10/23/2022

03/12/2023
04/09/2023

06/04/2023
1/15/2023

7/30/2023
and investors are attracted to occupational lease lengths that can provide long-term
income in a secure market with robust demand dynamics.
Primary care real estate investment activity fell in 2023 with the two dominant players,
PHP and Assura, turning their focus to rent reviews and asset management. We saw Inpatient Daycase Inpatient Ordinary Outpatient 1st Appt Outpatient Follow Up
increased rental growth in 2023, and it is expected that this will continue in 2024, with Outpatient Unknown Diagnostics Cancer
the financial viability of new development continuing to be a challenge.
Source: NHS Digital

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

ELDERLY CARE Figure 28: Adult social care vacancy rates, whole sector estimate
Elderly care providers are reporting strong operational
performance, with occupancy returning to pre-COVID levels, steady 2.7%
2012/13
growth in both private and local authority fee levels, and better 2.4%
management of agency costs. Operational performance is expected 2013/14
3.2%
to remain strong throughout 2024 for all independently provided 2.7%
healthcare sectors. The ongoing nursing shortage will likely remain 3.7%
2014/15
3.0%
a challenge in 2024, although the successful sponsorship of
4.3%
overseas staff in the UK has alleviated pressures. Recruitment 2015/16
3.5%
and staff retention should be a focus for operators. 4.8%
2016/17
Increasing build costs, planning challenges, and the availability 4.1%
of debt have slowed care home developments in the UK. This 5.3%
2017/18
will further exacerbate the undersupply of purpose-built market 4.7%
5.9%
standard beds. In line with elderly population projections, we 2018/19
5.2%
estimate that there will be an undersupply of all care home beds
6.2%
by 2030. However, in the right locations with the most experienced 2019/20
4.9%
and high-quality operators, there may be opportunities to invest 5.4%
in and extend existing mid-tier assets. Annualised elderly care 2020/21
4.4%
investment volumes are down 60% because of the high base rate, 8.8%
reflecting investment activity across wider real estate sectors. 2021/22
7.7%
In 2024, there may be increased activity driven by financial 7.4%
2022/23
stress, and we anticipate that good opportunities will exist for 6.2%
equity-backed investors who have a detailed understanding August 2023
5.4%
of the sector and are willing to take on risk. 4.8%
5.3%
We have seen a flight to quality and a wider pricing differential September 2023
4.9%
across the quality spectrum. Despite yields weakening, per bed
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
values have remained robust for best-in-class assets with the
strongest covenants, which highlight the importance of
Source: Skills For Care Care homes with nursing Care homes without nursing
underwriting elderly care investments.
Note: ASC-WDS data since Mar-23

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

SPECIALIST CARE HOMES

Infrastructure funds are drawn to the Government-backed income in this sector.
Still, there remains uncertainty whether strong historic fee growth will continue to be
a feature in 2024, considering a slowdown in 2023. This is driven by signs of further
budget constraints on local authority commissioning expected next year.
Inflation and staffing have been a challenge for all operational sectors and will remain
a challenge for specialist care sectors in 2024. Successful sponsorship of overseas
staff, like in the elderly care sector, has started to alleviate staff shortages and the
impact on operational performance.
The Government agenda for increased supported living care commissioning remains
in place, where care needs are better serviced in independent settings, with closures
of defunct residential facilities inevitable.
2024 will likely see a cautious return to the sector by investors, following the
contraction in 2023. M&A activity will be focused on the largest, most well-capitalised
groups targeting existing strong and growing platforms. The Disabilities Trust
acquisition of Sue Ryder’s neurological services in 2023 demonstrated a continued
market appetite for well-run services, in high demand and with high barriers to entry,
offering complex care services.
Partnerships between M&A and real estate investors have historically been a feature
of the sector. This is likely to be less prominent in 2024, where real estate investors
will likely target mature, stable operational platforms, and new high-quality assets.
From an investment perspective, these factors will channel investment away from
older, less efficient assets which do not meet modern regulations and towards
forward funding opportunities for new development. For owners, these measures will
necessitate considerable CapEx to upgrade and refurbish their existing buildings
next year.

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Leisure, Food & Beverage
We expect investors will deploy capital with caution
in 2024.
Many investors will consider only the most sought-
after opportunities that are backed by the strongest
tenants in dominant locations, offering alternative use
underwrites. While we anticipate there to be good
traction for these opportunities, the secondary market
is likely to remain relatively illiquid unless vendors are
willing to accept significant pricing movement.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 We anticipate further softening of yields in the first half of 2024 and suppressed trading and
investment volumes. We also consider that the gap between prime and secondary assets will
widen as investors retreat to proven assets of good quality in strong locations.

02 We predict further distress in 2024 as lenders and operators face ongoing operational challenges,
as well as a gap in debt/equity, following a reduction in capital values. Lenders and stakeholders
will need to make increasingly difficult decisions in 2024, something which has been part of the
‘wait and see’ approach in 2023.

03 Operational performance will remain under pressure in 2024, but some of the record high costs
seen in 2023 will start to ease. Discretionary spending and disposable income remain issues
across the country, which could impact revenues.

04 Operators and owners seeking to raise capital might turn to traditional sale and leaseback,
or a form of commercial ground rent. This is now seen as a way of retaining operational
control to place the capital receipts elsewhere rather than purely value accretion through
the transaction itself.

05 Across the pub sector, with an increasing supply of investment properties coming to market,
we expect the pressure to sell for several vendors will result in continued pressure on yields
and pricing.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

HOLIDAY PARKS Figure 29: Pubs and restaurants sales recovery We expect racquet club operators to continue a CapEx intensive
expansion strategy, with new club openings and refurbishments
Holiday hire revenues have been positive, which has increased 25.0% anticipated throughout 2024. Similarly, the low-cost segment has
“in-park” spend. However, home sales have come under increasing cemented its appeal amongst those looking for flexibility and
pressure and have caused a drag on financial performance. General affordability, with the number of budget gyms reaching an all-time
pressure on costs and overheads have also been significant in 2023. 20.0% high of 869 in 2023 (up from 645 in 2018). Mid-market operators
Still, we see this easing in 2024, especially regarding wages, COS will continue to focus on recovery and estate consolidation with
and utilities. We expect continued strong performance in 2024 refurbishment schemes deployed selectively. We anticipate that
15.0%
from the core park revenue streams, but home sales are not there will be some corporate activity in 2024 amongst the racquet
predicted to return to former levels until the wider economic and mid-market operators.
picture is more positive. 10.0%
PUBS
HEALTH AND FITNESS
Significant price increases are driving sector recovery, with strong
The market value of the UK’s health and fitness club sector reached 5.0%
growth throughout the year despite the cooler summer. The sector
an all-time high of £3.52bn in 2023. This reflects the ability of now looks forward to the critical Christmas season, and although
operators to increase membership prices above inflation without there is no World Cup, there is hope that business will not suffer
0.0%
suffering detrimental levels of membership churn. Evidently, from the rail strikes which dampened trading last year.
consumers continue to prioritise their health and wellbeing
expenditure against the backdrop of the cost of living crisis. As stabilised trading positions become more certain and reduced
-5.0%
However, with a continuous squeeze on disposable income levels margins will be a longer-term feature, we expect to see an
and sustained high OpEx levels, we anticipate operators will increasing amount of corporate activity and rationalisation going
implement more innovative membership options in 2024, -10.0% into 2024. In the investment markets, concern around rental levels
which will appeal to a broader range of consumers. Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep and tenant liquidity means that real estate fundamentals and
vacant possession underpin are critical to investment pricing.
Racquet club operators have proven to be the most successful 2022 2023
With an increasing supply of investment properties coming to
through 2023, owing to expansive premium facilities that have market, we expect the pressure to sell for several vendors will
retained an affluent membership base. Pubs Restaurants
result in a continued pressure on yields and pricing.
Source: CGA RSM Business Tracker

71 CBRE RESEARCH © 2023 CBRE, INC.

Self Storage
Self storage continues to demonstrate its
operational resilience and attractiveness as
a growth sector.
This looks set to continue in 2024, underpinned by
robust trading performance and heightened investor
appetite, seeking to gain access to high-quality
management teams and freehold backed businesses.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Operators will continue to demonstrate strong bottom-line operational performance.

Some softening is expected in occupancy, but this will be largely contained, with operators
increasing rental rates at close to or ahead of inflation.

02 Investor interest will remain at record highs, driven by the opportunity to invest into an
undersupplied nascent sector, underpinned by strong structural and sociodemographic change.

03 A lack of opportunities will continue to hamper investors’ ability to access the sector at scale,
resulting in a more flexible approach to partnerships and joint ventures.

04 Alternative store concepts including drive-up offers and new technology will continue
to diversify the UK self storage market, as it is built into new supply coming online.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Self storage continues

to mature as an asset class
The UK self storage sector is expected to remain one of the Figure 30: UK self storage investment volume SECTOR GROWTH
most sought-after OPRE asset classes, underpinned by a UK self storage has positioned itself as a valuable income
defensive income stream, efficient cost base, and a widening producing asset. Yields have compressed as the asset
customer appeal from consumers, businesses, and students. class has grown in notoriety for both customers and
Consumer and business demand continues to grow, but a low investors. Heading into 2024, and the sector is expected

2018

2018

2018

2018

2018

2018
level of customer awareness still prevails alongside a slow but to continue to receive interest from investors who look
expanding store development pipeline able to cater for the £300m to benefit from the long-term profitability of the sector.
existing demand.
CUSTOMER DEMAND
INVESTMENT MARKET £250m £35m
£258m The key driver of customer demand for storage is moving
The UK investment market outlook remains positive. The sector homes. If mortgage rates are expected to remain high in
remains a strong conviction play for major investors and with £233m
2024, this will impact households whose mortgages come
operators remaining committed to scaling their existing £200m £217m
to renewal. This could have the double effect of restricting
businesses via organic or inorganic acquisitions. In 2024, house sales and reducing the number of available homes
we expect to see a number of high-profile deals announced, to rent. The result could see far less households moving
both in regional and core London markets. Debt remains a key £150m homes. Conversely, a growing demand driver for storage is
underwriting consideration. student storage, where students use storage during their
£137m £133m summer break. This demand offers a consistent source
OPERATIONAL MARKET £100m of revenue compared to other cyclical demand drivers.
Operators remain cautiously optimistic in spite of a softening 2024 TREND
residential home market and cost of living crisis. Operators
continue to cite a strong non-discretionary demand from £65m The rise in container-based storage has offered new types
£50m
consumers going through periods of change from death, of supply in the sector. Indeed, in 2024 more operators are
divorce and renovation. Business demand has remained expected to utilise the operational advantages that arise
robust off the back of a lack of suitable, good quality from container-based storage. Container storage offers
£0m
alternatives. 2024 is therefore likely show strong operational operators a solution to regulatory and planning barriers
Total UK investment volume 2023 Pipeline that may have limited access to certain markets.
performance with operators looking to optimise SEO and
maximise conversion rates. Source: CBRE Research

74 CBRE RESEARCH © 2023 CBRE, INC.

Roadside & Automotive
There is increasing appetite amongst investors,
particularly from specialist funds, pension funds,
and long income funds for well-located,
income-producing assets.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 2024 could see more platform purchases than 2023 as owners assess their portfolio strategies
amid the growing adoption of electric vehicles. Operator mergers are also likely to continue
as operational value in the sector remains strong.

02 Transaction demand will remain for core assets. The adoption of a dual fuel strategy for sites
will encourage existing tenants and facilitate new market entrants.

03 Car dealerships will continue to be adversely impacted by agency dealerships; a model set
to cause further disruption in 2024.

04 The UK Government extended the date for the cease of all petrol and diesel new vehicle sales
from 2030 to 2035. The coming year will bring additional scrutiny on regulatory decisions that
impact the sector.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

The Roadside & Automotive

sector in a changing environment
A MARKET SET FOR CHANGE Figure 31: Number of electric vehicles in the UK
2024 is expected to bring acquisition opportunities for core
single site and portfolio assets. Petrol Filling Station (PFS) assets

2023 (YTD)
saw high profile mergers in the last year but heading into 2024, the

2020
sub-sector remains disaggregated with multiple operators in effect.

2022
2016

2019
2018

2021
2017
Car dealerships will also see a change in 2024, with a shift 1,000,000
towards agencies set to uproot the long-established franchised
dealer market. As car manufacturers opt to work with few dealer 900,000
partners, the expectation is tenures will move from lease
to ownership. 800,000

ELECTRIC VEHICLE DISRUPTION 700,000

2024 will see portfolio consolidation as owners assess upholding
600,000
or disposing of Petrol Filling Stations. It remains to be seen the
strategy owners take, but the inflow of institutions to the sector
500,000
indicates investors are in the process of identifying the right
strategies for their portfolios.
400,000
Operators are increasingly aware of the need to implement a dual
fuel strategy on their sites. 2024 will continue to see the adoption 300,000
of electric vehicle charging. Car showrooms have also seen an influx
of new market entrants. The number of alternative-fuelled cars on 200,000
the road will hit one million in 2024, with the uptake of electric
vehicles set to continue. 100,000

0
Cumulative Total Growth line

Source: SMMT

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

WHAT TREND WILL POSE A CHALLENGE IN 2024? While the widescale adoption of electric vehicles may seem a
Demand for electric vehicles has risen sharply in the last far distant challenge, the reality is adapting portfolios to
four years. The percentage of new car sales that are facilitate electric vehicles is a necessary solution to what is a
electric vehicles has reached 23%, rising from just 3% in long-term challenge to the sector. Operators can gain
2019. 2024 will likely see the UK surpass one million competitive advantage by adapting their portfolios early.
electric vehicles on the road. Roadside & Automotive The UK Government’s decision to delay the ban on all petrol
operators will need to adapt their sites to be suitable for and diesel new vehicle sales to 2035 provides additional time
electric vehicles. for asset owners to modify their sites. However, given the
UK’s commitment to net zero targets, some car
manufacturers are committing to delivering all-electric
vehicle fleets by 2023 regardless of regulatory uncertainty.

78 CBRE RESEARCH © 2023 CBRE, INC.

Data Centres
Demand for data centre space in London
remains strong, though a lack of available
power in London will be an inhibitor to growth.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Colocation data centre take-up in London in 2024 is expected to challenge the

all-time high of 139MW set in 2022, given continued strong demand from cloud
service providers and enterprises.

02 More organisations are likelier to let space in data centres that are further afield than data centre
submarkets such as Slough and Docklands, where availability has declined to new lows in 2023.

03 Difficulties securing capacity and rising development and operational costs at data centres
within the M25 will lead more enterprises and hyperscalers to look for space at facilities
further afield.

04 Data centre providers are expected to see significant demand for capacity from companies
with artificial intelligence (AI) requirements in 2024.

05 A lack of available power at key electricity substations (e.g. Iver) in west London will inhibit
growth in the UK capital.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Appetite for data centre

space to remain strong
TAKE-UP IN LONDON EXPECTED TO REACH NEW HIGH Figure 32: London data centre take-up (MW), 2018-2024F MORE ORGANISATIONS WILL
Take-up in London next year (130MW) is expected to be almost LOOK FURTHER AFIELD FOR CAPACITY
triple 2019 levels (53MW) due to continued strong demand from More organisations are likelier to let space in data centres that
hyperscalers and enterprises. are further afield than the largest data centre submarkets, given the
2019 54
Large American technology companies are taking ever greater likelihood of low availability in areas such as Slough and Docklands
amounts of capacity in the UK capital to ensure demand for next year.
their digital services can be met in future.
Enterprises are having a particularly difficult time sourcing
Equally, enterprises need capacity from colocation data 2020 86
capacity, considering most new supply in London is already
centres to form the foundation of their transformation efforts.
accounted for by hyperscalers before it is delivered. Suitable and
Much of the take-up next year is expected to happen in the more cost-effective capacity is sometimes more readily available in
submarkets where hyperscalers already have a significant data centres located outside the M25 motorway that encapsulates
2021 90
presence. Slough, in the western corridor of London, London. Organisations can often serve London customers from
is a prime example. a variety of locations, not just areas where clusters of data
centres exist.
UPTICK IN ARTIFICIAL INTELLIGENCE DEMAND EXPECTED 2022 139
Data centre providers are expected to see significant demand COLOCATION RENTAL RATES TO CLIMB FURTHER
for capacity from companies with artificial intelligence (AI)
requirements in 2024. A scarcity of available space, as well as higher build and operational
2023F 120 costs, are expected to drive rental rates for tenants of data centres

FOREC AST
Requests are expected to come mostly from technology
considerably higher in 2024. Supply and demand are more evenly
service providers and AI start-ups, as opposed to hyperscalers or
enterprises. The former group are wholly dedicated to the provision matched in London than ever – take-up even exceeded supply in
of services based on AI technology and, therefore, need capacity 2022, and supply is barely expected to outpace demand this year.
in significant quantities now. The latter group are considering 2024F 130
This market dynamic, inflation, and other factors – such as a
what their requirements are relative to their IT strategies and are, small pool of contractors that are in high demand – are conspiring
therefore, expected to take longer to issue requirements for now.
to send the cost of letting capacity at colocation data centres
Demand for AI-related capacity in London will help drive the upwards at an exceptional pace.
vacancy rate to single digits (9.1%) for the first time by the end of Source: CBRE Research
2024.

81 CBRE RESEARCH © 2023 CBRE, INC.

Life Sciences
The ongoing demand for Life Sciences
laboratory space will continue to outstrip
supply, yet relief is on the horizon as more
projects near completion and enter the market.
 Intelligent Investment Real Estate Market Outlook 2024 | UK

Key Takeaways

01 Investor sentiment surrounding Life Sciences Real estate is expected

to remain optimistic going into 2024. This will be particularly true for
established science and technology assets in Tier 1 locations
(primarily the Golden Triangle of Cambridge, London, and Oxford).

02 Take up rates for 2023 were broadly similar to 2022 but are expected
to increase in 2024, as an estimated 2 million sq ft of new commercial
lab space becomes available. Rental rates are still expected to rise
modestly in the Tier 1 locations.

03 Venture Capital (VC) funding into the sector has been subdued relative
to the peak of 2021, and that is likely to continue into 2024. However,
the pension reforms announced this year could unlock billions of
pounds of funding for young, fast growing Life Sciences companies.

04 UK Government commitment to the sector supporting the

'Scientific Superpower' vision was strengthened with a significant
package of investments outlined in the 2023 Autumn Statement.
However, a looming general election could stall momentum.

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Laboratory space ramp up

The outlook for growth in the Life Sciences industry remains positive,
and it continues to be a key contributor to the UK economy. However,
Figure 33: UK Life Laboratory Science Development Pipeline (sq ft)
the sector has not been immune to economic headwinds in investment
markets, particularly impacting start-ups and their ability to access VC 5,000,000
funding. With public funding, there was very welcome news confirming
the UK’s commitment to the Horizon Europe programme to 2027, 4,000,000
ensuring UK researchers have access to the world’s largest scientific
collaboration platform, and the grants and funding within. Government 3,000,000
commitment to the sector strengthened with a £520m package of new 2,000,000
investments outlined in the Autumn Statement.
1,000,000
REAL ESTATE DYNAMICS 0
Investor sentiment for Life Sciences has remained positive over the last 2024 2025 2026 2027 2028 2029 2030
12 months, despite the broader economic challenges facing all sectors. Source: CBRE Research
Cambridge Oxford London Other
Transactional volumes were 74% down versus 2022, impacted by
broader economic conditions, but also reflective of many shifting their
focus from acquisition to delivery. We expect this to continue into 2024 Figure 34: Headline Rents for Fitted Labs (£ per sq ft)
Forecast
with investments centred around established science and technology 200
assets, particularly in Tier 1 locations.
In 2023, the take-up of lab space has remained at a level similar to 2022, 150
with an estimated total of 720,000 sq ft. However, the availability for £ per Sq ft
purpose-built commercial lab space in the UK remains limited and 100
therefore constrains market movement. Still in 2024, supply will
somewhat improve as we begin to see new lab space delivered. We
estimate around 2 million sq ft of lab space will be completed in 2024, 50
mostly in the Golden Triangle of Cambridge, London, and Oxford. Some
notable developments include Stage 1 of Victoria House and Apex at 0
Tribeca in London, Granta Park in Cambridge, and Nebula at Milton 2018 2019 2020 2021 2022 2023 2024 2025
Park, Oxford. Source: CBRE Research London Oxford Cambridge

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 Intelligent Investment Real Estate Market Outlook 2024 | UK

Beyond the South East, Manchester continues to develop its leading Life Sciences
Figure 35: Total Venture Capital Funding raised by UK Life Science Companies (£M)
position in the North, contributing 27% of this year's total UK uptake (200,000 sq
ft). Upcoming projects such as Kadans’s Plus Ultra Scheme on Upper Brook Street
and Bruntwood Sci Tech’s City Labs 4.0 will help support Manchester’s growth 6000
ambitions.
Despite the provision of new lab space, we still expect lab rents to increase in Tier 1
locations in 2024. This is likely to plateau in 2025 as we reach a more balanced 5000
equilibrium, with more supply becoming available (Figure 34).

PRIVATE AND PUBLIC FUNDING 4000

Although subdued relative to the peak of 2021, the BIA estimate 2023 VC financing
for UK Life Sciences companies will exceed last year's total (Figure 35). Their latest 3000
figures for Q3 2023 reveal the most robust funding period since the sector’s peak in
2021. This corelates with an encouraging surge in fundraising among European
companies. Looking ahead, the Government’s Mansion House pension reforms
2000
could unlock billions of pounds of new funding opportunities for fast growing Life
Sciences companies from institutional investors and DC pension funds.

The upcoming general election may create a level of uncertainty over the future 1000
commitment to the Life Sciences industry within the broader political agendas. In
turn, this may temporarily impact market and investor sentiment.
0
2017 2018 2019 2020 2021 2022 2023
London Oxford Cambridge Other Predicted
Source: Pitchbook (All VC Pharma & Biotech, Life Sciences, AgTech, Medical
Devices, Medtech, HealthTech (include related keywords) Search HQ Only)

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Contacts
Jennet Siebrits Steven Devaney Miranda Botcherby
Head of UK Research Director, UK Research Director, Head of UK Industrial & Logistics and
[email protected] [email protected] Retail Research
[email protected]
Ruth Hollies Toby Radcliffe
Senior Director, Head of European Forecasting Senior Analyst, UK Sustainability Research Scott Cabot
[email protected] [email protected] Director, Head of UK Residential Research
[email protected]
Daniel Jones Simon Brown
Analyst, Economics & Forecasting Senior Director, Head of UK Office Research Alice Marwick
[email protected] [email protected] Director, Head of OPRE Research
[email protected]

© Copyright 2023. All rights reserved. This report has been prepared in good faith, based on CBRE’s current anecdotal and evidence based views of the commercial real estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to
significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances. Other firms may have different opinions, projections and analyses, and
actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change.
Nothing in this report should be construed as an indicator of the future performance of CBRE’s securities or of the performance of any other company’s securities. You should not purchase or sell securities—of CBRE or any other company—based on the views herein. CBRE disclaims all liability for
securities purchased or sold based on information herein, and by viewing this report, you waive all claims against CBRE as well as against CBRE’s affiliates, officers, directors, employees, agents, advisers and representatives arising out of the accuracy, completeness, adequacy or your use of the
information herein.
Contacts
Tom Morgan Simon Galway Richard Dakin Luke Mills
Executive Director, OPRE, Healthcare Executive Director, OPRE, Roadside & Automotive Europe Head, Investment Banking Managing Director, UK Residential
[email protected] [email protected] and Debt & Structured Finance [email protected]
[email protected]
Kenneth Hatton Andrew Jay Andrew Saunderson
Executive Director, Head of Hotels, Europe Head of Europe Data Centre Solutions, Kaela Fenn-Smith Executive Director,
[email protected] Advisory & Transaction Services Managing Director, ESG Consultancy Head of UK Residential Capital Markets
[email protected] [email protected] [email protected]
Sarah Livingston
Executive Director, OPRE, Healthcare Joanne Henderson Richard Smart Justin Carty
[email protected] Executive Director, Head of Life Sciences, Europe Managing Director, London Executive Director, Affordable Housing
[email protected] [email protected] [email protected]
Tom King
Executive Director, OPRE, Leisure Kevin Restivo Paul Farrow Thomas Mudd
[email protected] Head of Data Centre Research, Executive Director, Head of UK Industrial & Logistics Senior Director, Affordable Housing
Advisory & Transaction Services, Europe [email protected]
[email protected]
Oliver Close [email protected]
Senior Director, Self Storage Rhodri Davies Oli Buckland
[email protected] Executive Director, Head of UK Retail Executive Director, Residential Capital Markets
[email protected] [email protected]

© Copyright 2023. All rights reserved. This report has been prepared in good faith, based on CBRE’s current anecdotal and evidence based views of the commercial real estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to
significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances. Other firms may have different opinions, projections and analyses, and
actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change.
Nothing in this report should be construed as an indicator of the future performance of CBRE’s securities or of the performance of any other company’s securities. You should not purchase or sell securities—of CBRE or any other company—based on the views herein. CBRE disclaims all liability for
securities purchased or sold based on information herein, and by viewing this report, you waive all claims against CBRE as well as against CBRE’s affiliates, officers, directors, employees, agents, advisers and representatives arising out of the accuracy, completeness, adequacy or your use of the
information herein.