Real estate investment markets are expected to emerge from a period of uncertainty and pricing will likely stabilise towards the end of 2023, with a continued flight to quality and ESG being key drivers of activity across all asset classes, according to the UK Real Estate Market Outlook 2023 published by advisor CBRE.
In the near term, a moderate recession is expected, with high inflation and rising interest rates putting downward pressure on economic activity. Income returns, rather than capital growth, will likely drive commercial real estate returns in 2023 – heightening the importance of asset management and the financial performance of occupiers.
On the investment side, CBRE’s head of UK Research, Jennet Siebrits, anticipates further inbound investment into the UK market. ‘While we forecast investment volumes will drop somewhat, the UK real estate market benefits from a diverse investor base. The realignment of prices towards the end of 2022 means that 2023 may provide opportunities for private capital to enter the UK market.’
Siebrits added: ‘We face an undoubtably challenging start to 2023, but the clouds will begin to break later in the year. Logistics and purpose-built student accommodation sectors have robust rental growth prospects and life sciences, build-to-rent and healthcare sectors have strong fundamentals that remain attractive to investors.’
The performance of the listed sector in 2023 will also be of interest. In 2022, the share prices of UK REITs fell well before the change in the private property market. Siebrits: ‘Investors will therefore be watching for signs in listed property prices that indicate improved confidence in UK real estate. Green shoots of recovery will materialise.’