2024 Forecasts: Insights from our Professional Services Teams
Posted by Colliers on 5th January 2024 -
In December we published our 2024 Forecasts, over the next week across a series of articles we will outline the predictions from a range of our service lines. In this article we share the insights of some of our professional services departments, including Rating, Debt Advisory, Valuations, ESG and Project & Building Consultancy.
John Webber - Head of Rating
The Government appears to have given up completely on the election pledge of reducing the burden of business rates. It seems likely they may well increase the multiplier of 51.2p by 6.7% in April 2024. This would be a major kick in the teeth to large businesses in all sectors faced with spiralling energy and wage costs but particularly the high street.
The Non Domestic Rating Act 2023 became law on 26th October 2023 and within it are restrictions on the ability to appeal as well as a framework to introduce a ‘Duty to Notify’ which could layer significant administrative burdens on businesses throughout the country.
Given that the ‘government-in-waiting’ is still using the word ‘scrap’ in relation to business rates but is also emphasising the need for regular and certain tax receipts, there is a potential for a simple rebadging of business rates over the next couple of years. If Rachel Reeves finds her way into No 11, the rebadge might be something snappy like “Commercial Council Tax”!
Laurence Richardson and Amy Griffiths from our Debt Advisory team
As anticipated, swap market volatility has fallen in 2023 and a ‘new normal’ is becoming clearer as inflation eases and central bank forward guidance become less aggressive. A growing consensus and the latest swap curves suggest that rates have peaked and may begin to fall in late 2024. Should cuts come sooner, they may be linked to a darkening economic outlook. Be careful what you wish for!
Funders remain well-capitalised. Prudent lending policies since the GFC have seen UK bank exposure to commercial property fall significantly from near 12% to less than 7%.
Capital inflows are healthy with greater investment and fund diversifications into ‘credit strategies’. This should maintain the growing appetite for lending. Nevertheless, this will be accompanied by a continued flight to quality and ever greater scrutiny of income streams to service higher debt costs.
Banks will continue to jostle with resourcing challenges presented by tricky legacy "backbook" transactions while simultaneously wishing to originate new, high quality transactions in a thin market. Alternative lenders will still secure attractive risk-adjusted deals due to more flexible risk analysis and underwriting processes than traditional lenders.
This will be especially true where owners fail to secure refinance terms from incumbent lenders owing to stressed credit structures, rather than poor asset credentials. Market volatility will continue to create opportunity.
Sara Duncan - Head of Valuation & Advisory Services
Valuers will remain busy throughout 2024 with refinancings continuing in a setting of higher interest rates. As transactional markets regain momentum, we anticipate investor focus to remain on markets and sectors resilient to economic volatility and political uncertainty.
Increasingly, regulation and market demand will reflect ESG compliance or the cost of achieving compliance. This will be most visible in the pricing chasm between the most and least compliant assets. We hope to see greater consistency in ESG reporting, particularly around transactions, so that evidence linked to sustainability features becomes more robust.
Matt Sal – UK Sustainability Manager
In 2023, a raft of new legislation with acronyms ranging from NFD to CSRD were introduced while the Prime Minister announced that the UK would push back key sustainability targets to 2035 and beyond. In 2024, CRE market leaders will continue ambitious ESG strategies and deliver leading product, while those slower to respond may miss key intervention dates and a face greater risk of obsolesce and value degradation.
A resurging appetite to nail down the “S” in ESG will arise. A concerted effort will become visible to use experts and improve social measurement methods to lift the social veil and implement clear plans in this space. Due to greater disclosure requirements, strategies will be increasingly common at corporate, portfolio, and fund level, but will also bring into sharp relief the unavoidable fact that it is at asset level where action must be taken.
Net Zero Carbon’s “Scope 3” requirements will snowball engagement up and down the value chain resulting in more data requests and reporting requirements. A growing divide will be evident between those operators with Net Zero Carbon pathways for their assets, enabling easier reporting and value preservation, and those stuck responding reactively struggling to meet changing occupier demands, increasing their tenant flight risk.
Stuart Taggart and Robert Kendal from our Project & Building Consultancy team
After the market normalising in 2022, tender prices in 2023 will show growth of 3.0% to 3.5% year on year. Similar growth will be seen in 2024, reflecting both weaker demand from a slowdown in new work orders, but also cost pressures arising from continuing labour shortages and supply chains.
A notable rise in contractor insolvencies in 2023 (such as Henry Construction and Buckingham Group) reflects tight margins and a cautious and selective approach to procurement of complex or large-scale projects. This will prove to be a hallmark of 2024 with two-stage tenders remaining prominent. Many contractors will insist on RIBA Stage 4 design before taking on ‘design-and-build’ contracts.
The second-staircase rule for new residential buildings beyond the 18m threshold, presents a further challenge to development in 2024. This will impact at least 20,000 units in planning. Despite assurances of transitional periods, many projects are already being redesigned and will continue to be redesigned in 2024 to salvage viability of projects compromised by loss of sales areas.
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