Solent Freeport will boost south coast investment and employment, says CBRE real estate report
Green shoots of recovery in UK real estate investment markets are expected by the end of 2023 - with confirmation of the Solent Freeport seen as a significant boost for the south coast.
The UK Real Estate Market Outlook 2023 report, published by CBRE, forecasts that real estate investment markets are expected to emerge from a period of uncertainty and pricing will likely stabilise.
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 next year – heightening the importance of asset management and the financial performance of occupiers.
The announcement that the Solent Freeport is now confirmed is seen as a significant boost for the south coast in terms of both investment and employment opportunities.
The five existing and proposed designated ‘tax sites’ across the region will benefit from a package of incentives that include enhanced capital allowances; no stamp duty; five years' full relief on business rates and three years' employer national insurance relief on annual salaries of up to £25,000.
Head of CBRE Southampton James Brounger comments: “The recent confirmation of Solent Freeport as one of the first UK Freeports will see private sector investment into the region of £1.35bn.
"With the forecast of some 15,000 jobs and the construction of substantial state-of-the-art business space, the south coast will benefit hugely as it looks to become the thriving hub of the UK’s marine and maritime sector."
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 undoubtedly 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 real estate investment trusts (REITs) fell well before the change in the private property market.
"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.”
Sustainability
The implementation of more mandatory disclosure requirements and high energy prices will accelerate sustainability action within the real estate market, from both investors and occupiers. CBRE expects buildings with greater energy efficiency or using onsite renewables to be insulated from the worst of the energy price shock.
More ‘net zero’ buildings are anticipated to enter the market in 2023 and the increased demand from occupiers will prompt further scrutiny as to what qualifies as a ‘net zero building’.
Office
In the office market, leasing activity will be constrained due to a fall in office-based employment in 2023. CBRE expects continued strong demand for the best quality space and as a result, appetite for properties that are newly developed or refurbished will remain high.
Yields will expand further during the first half of 2023 in most UK office markets. Pricing will stabilise during 2023 and this should stimulate more investment activity.
CBRE forecasts office investment volumes to be down 20% year-on-year in 2023, with the majority of transactions likely to take place in the second half of the year.
Logistics
CBRE anticipates occupational activity levels will remain above long-term averages in the logistics sector. Third-party logistics providers are expected to continue leading the take-up due to the ongoing search for flexibility in supply chains.
The market faces challenges including critically low levels of supply, increasing construction costs, rising exit costs and higher exit yields. However, CBRE asserts that logistics assets will remain attractive to investors with continued rental growth expected.
Residential
While activity in the housing market will reduce in 2023, CBRE forecasts investment appetite for build-to-rent and co-living to remain strong.
The challenges faced in the for-sale market should boost the already strong occupier demand for rental housing, including build-to-rent, co-living and single-family homes. The rental sector will remain resilient against recession, and there is likely to be strong rental growth of 4% in 2023 and 5% in 2024.
CBRE anticipates the sector will experience a strong bounce-back as the economy recovers and lower inflation allows interest rates to fall.
The affordable housing sector will also remain resilient, supported by its strong environment, social and governance (ESG) credentials and appeal to investors. Social and affordable housing funds account for the largest segment of social impact investment in the UK, valued at £3.8 billion.
Life sciences
The life sciences sector continues to grow, in part driven by companies in this sector seeking to de-risk supply chains by capitalising on the nearshoring, onshoring and reshoring trend which countries across Europe are benefitting from.
The ‘golden triangle’ locations – Cambridge, London and Oxford – remain a particular focus, with a majority of funding allocated to these areas.
However, this is broadening into other regional locations and with Government ambitions to make the UK a 'Science Superpower' by 2030, the sector is likely to benefit from continued research and development funding as part of a package to deliver this.
READ MORE: Solent and South Devon Freeports fully approved by government
Picture caption: Head of CBRE Southampton James Brounger Credit: CBRE
