Insights —
with vision
Monday, 8th January 2024
Prosper Group's Review and Projections for the Commercial Property Market: Navigating 2023 and Charting the Course for 2024.
As we bid farewell to 2023 and set our sights on the upcoming year, Prosper Group takes a closer look at the state of the commercial property market, reflecting on the challenges and triumphs of the past year and offering insights into what the industry might expect in 2024.
The Commercial Property Market in 2023: A Recap
Leasing Challenges in the Office Market:
The year 2023 presented a challenging landscape, particularly in the office market. Prosper Group observed a notable trend of lease transactions taking considerably longer than usual to close. Despite this, incentives remained low, indicating a resilience in the face of market pressures.
Industrial Purchases Remain Strong:
While the office market experienced a grind, the industrial sector stood out as a beacon of strength. Low vacancy rates and a limited supply of available properties for sale contributed to a robust industrial purchasing environment. Investors continued to view industrial properties as a desirable asset class, maintaining tight capitalisation rates.
Owner-Occupied Struggles:
With a scarcity of available properties, owner-occupiers found themselves facing a significant challenge in locating the perfect property to meet their needs. This scarcity drove many clients to seek assistance from Prosper Group, highlighting the demand for expert guidance in navigating the competitive commercial property landscape.
Retail's Resilience:
Contrary to some challenges faced by other sectors, retail, particularly in convenience centres, displayed resilience throughout 2023. Prosper Group anticipates that 2024 will be a strong year for retail, especially in smaller centres catering to local communities.
Investment Market Observations:
The investment market for commercial properties experienced a period of relative stability in 2023. However, many investors adopted a wait-and-see approach, anticipating favourable shifts in market conditions before committing to significant transactions.
Looking Ahead: Prosper Group's Predictions for 2024
Cap Rates and Increased Transactions:
Prosper Group predicts that cap rates will see an increase in 2024, aligning with current market conditions. This adjustment is anticipated to stimulate more transactions, addressing the low levels observed in the previous year. As buyers become more active, vendors are expected to meet the market, fostering a more dynamic commercial property landscape.
Office Market Challenges Persist:
The office market is anticipated to face another year of challenges in 2024. Low tenant movement and higher vacancy rates are expected to persist, creating a complex environment for commercial property professionals. Prosper Group suggests that careful navigation will be essential for those operating in the office sector.
Industrial Rental Stability and Potential Distress Sales:
While industrial properties experienced rental increases in recent years, Prosper Group foresees stability in industrial rents for 2024. However, a potential increase in distress sales, particularly in the development sector, might present new opportunities for savvy investors.
Buyer Caution and Strategic Choices:
Prosper Group's advice to investors in 2024 is clear: choose carefully. With uncertainties in interest rates and market conditions, due diligence is crucial. Investors are encouraged to ensure that their chosen properties not only cover their debt but also align with future financial and commercial expectations.
Continued Emphasis on Choosing Wisely:
For clients navigating the commercial property landscape in 2024, Prosper Group reiterates the importance of choosing wisely. A fundamental basis, both financially and commercially, should guide property decisions. The evolving relationship between interest rates, debt levels, and cap rates underscores the necessity of careful consideration before making significant investments.
As Prosper Group reflects on the commercial property market's journey through 2023 and peers into the future of 2024, the key takeaway is clear: strategic decision-making is paramount. With challenges and opportunities on the horizon, Prosper Group remains committed to guiding its clients through the dynamic landscape of commercial property, ensuring that each investment aligns with their long-term goals. As the industry braces for change, Prosper Group stands ready to offer expert advice and support, navigating the path to success in the ever-evolving world of commercial real estate.