Outlook 2024

The night is darkest just before the dawn
The tail end of this cycle is proving to be protracted as policymakers take a cautious view on inflation. While interest rates may well have peaked, there is no sign yet of any pivot to cutting, which markets expect at some point in 2024. Indeed, central banks appear largely cognisant of what Milton Friedman called the “long and variable lags” between implementing monetary policy changes and the time they take to have an impact. With that in mind, patience is the watchword at central banks, implying a higher for-longer policy on rates, with no respite until probably late next year. Whilst there are challenges presented by higher interest rates and bond yields, real estate has its place for investors when it offers a compelling yield, capital protection or indeed capital growth. On that basis, opportunities are evident within real estate, but to spot them one needs to focus on the fundamentals and try to ignore the noise that amplifies only the negative headlines.

A borrower or lender be?
Whilst borrowers will be questioning the accessibility to, and viability of, their finance, new lenders into the market are increasingly well positioned. As conventional lenders operate more conservatively, opportunities have opened for nimble alternative lenders able to fill the gap. We have been capitalising on opportunities in debt markets, specifically with whole loans and senior loans where clients are drawn to the capital protection on offer, whilst potentially benefiting from high risk-adjusted income returns. See pages 6-7 for details.

Stick to the fundamentals
Our analysts covering the Living (Beds) and Industrial & Logistics (Sheds) sectors recognise strong and growing occupier demand coupled with critical shortfalls in the quantity and quality of supply. With both sectors starved of suitable accommodation, they have seen, and will likely continue to see, strong rental and income growth, particularly in the strongest urban areas. See our arguments as to why investors should increase relative weightings to ‘Beds and Sheds’ in 2024 on page 14.

Climate and nature matters, now
Sustainability and Net Zero Carbon discussions are being unsettled by the economic and political backdrop, but our commitment is resolute. Our long-term approach remains to become a restorative business by 2050. Think of this as a step beyond net zero. More immediately, we are committed to short-term measures to reduce operational (energy) costs and protect against obsolescence due to regulatory demands that are an imperative for investors right now. We are acting to improve the climate and the health of the planet on a number of fronts, most recently by creating a Natural Capital strategy to channel funds into replenishing biodiversity and limiting global warming.

Out of vogue?
The retail and office sectors remain challenged by ongoing structural and cyclical issues that will see further value declines. This will reinforce negative perceptions, but equally could offer potential opportunities from their repricing. The consensus won’t always be right. Prime buildings in amenity-rich office and retail locations will retain strong appeal to occupiers and consequently investors, but we warn that these opportunities are more limited than many may expect. Supermarkets, with long and secure index-linked leases, are an attractive segment of an unloved retail sector. See pages 22-23 for more information.

And don’t just take our word for it.
This year, we have also asked experts from outside our organisation to supplement our articles with their own views, taking us to task or supporting our opinions. Thanks to those experts for their contributions to help deepen investors’ understanding of the challenges we face, and the opportunities that are there to