The First Year of the New Property Cycle

The metaphors come thick and fast when you think about new starts. Our industry seems to like the green shoots of spring; apposite having seen the first daffodil in the garden this week.

There is a very serious side to the first year of the new property cycle. Investor-landlords are deeply challenged by a capital stack under pressure. Both investor and corporate clients are focussed on the Facilities Management (FM) cost base that has spiralled in recent years, alongside existential questions for inferior assets, which remain outstanding.

Political uncertainty is heightened, with national, mayoral and local elections domestically complemented by US elections in November that have global ramifications. The UK is actively involved in two regions of active combat, both of which have no clear end game in sight.

So there are reasons for caution in real estate, much as hesitancy dominated 2023 non-decisions across the investor and occupier markets. Yet reticence to act will not define 2024; in fact quite the opposite.

This is the first year of the new property cycle.

The best real estate decisions over this new property cycle will be made in the next 12 months. Based increasingly on evolving sources of new data (notably generative AI) and foresight, but equally important will be a heavy dose of conviction and courage. Failure to act will mean a failure to catch the market turn and the best of the value that emerges.

At our 16th January Property Perspectives event, we talked extensively about the characteristics that should define these decisions. Near term focus on refinancing will dominate; $3.1 trn of asset value globally has debt that will need refinancing by end 2025. However, look through the short-term to technology as an enabler of value and mitigator of costs.

This is especially true for sustainable tech, where commitments to net zero pathways or other ESG goals are successfully transitioning through technology-led solutions into clear actionable next steps. In fact the nexus between the two, sustainable proptech, is the most likely technology that investors will buy in 2024, according to the most recent JLL Investor survey.

There is a third driver of the best decisions in 2024 and this is perhaps the most important. The human experience of real estate will define value like never before. As individuals - employee, customer, shareholder, stakeholder - we will see the best buildings curated to fit our expanded and more nuanced needs. Workspace zones, foodhalls for comestible choice, wellbeing as standard - all of it will be normalised for in-demand buildings of the future.

The prize for creating the most sustainable spaces is outsized rental growth. Corporates are uncompromising on commitments and Prime office rents are being pushed up in an era of rarity for new supply. For industrial and logistics space, the best buildings are very well supported, especially where landlords are working proactively with property managers to understand nuanced occupier needs. Prime shops are seeing rental growth and demand in the Living sectors, already strong, is now a battleground for the best of these features under one roof.

So 2024 is going to be a challenging year, but one that will also be defined by opportunity. I'll say it again; the best decisions made over the next 12 years will be rooted in the next 12 months. It may require a little extra courage, but it will be worth it.