Investors experienced difficulties in 2022 due to the convergence of high and growing inflation, as well as the sheer speed and scale of monetary and financial tightening.
As we move into 2023, there is no ignoring the threats to business. The most notable being rising inflation, interest rates and recessionary risks impacting investment and occupier markets. With £60bn of outstanding loans due to be refinanced within the next two years, UK interest rates will impact those with high levels of debt.
While 2023 may also prove challenging for investors, it’s clear that there will be opportunities in assets with strong long-term fundamentals. Every sector has value, but there is a growing emphasis on quality locations, solid ESG credentials and strong long-term fundamentals. These asset classes range from urban industrial and logistics, affordable housing to essential retail.
Property development and investment decisions now place a greater emphasis on climate concerns and ESG factors. From construction, to finance, to operations – environmental, social and corporate governance have become a large part of business decisions. Commercial property assets not deemed to be “future fit” are likely to see limited occupational and investor demand as ESG considerations become ever more prominent in tenant and investor decision-making.
Industrial and logistics
As businesses look for greater supply chain flexibility, the UK logistics market will continue to witness occupational demand above long-term trends. This take-up will be driven by third-party logistics distributors.
Vacancy rates will remain critically low, as build-to-suit development grows, and rising cost of finance and higher exit yields create a challenging environment for speculative development. Following a period of sustained repricing, logistics yields will stabilise – industrial and logistics assets will therefore remain attractive to investors with continued rental growth expected.
With strong demand, predictable yields and a compelling social impact – the affordable housing sector also a model for long-term growth. But 2023 could see reforms that may liberate the affordable housing sector to better utilise both state grants and private capital.
One thing is clear, the public sector cannot afford to meet demand for social housing on its own, and the private sector is increasingly keen to help fund new developments. This will improve existing stock, by working in partnership with housing associations and local authorities over the long term.
Those who prepare now will be well-positioned to benefit when the next upturn arrives. As previously mentioned, assets with strong income streams and robust ESG credentials are particularly inviting for investors. Opportunities will present themselves in sectors with strong, long-term growth characteristics.
The success of an asset management firms will be driven by their ability to create a unison of strong leadership, operational improvements, alignment with stakeholder expectations, employee resilience and a strengthened work culture. For all the latest updates regarding Targetfollow’s 2023 projects, visit our Facebook, Twitter and LinkedIn.