The latest recession
“The UK economy has officially entered recession, figures show,” reports Sky News. This downturn presents both challenges and unique opportunities for property investors.

The current recession echoes historical trends, but not all recessions are created equal. While economic downturns typically lead to financial challenges for individuals and businesses, they also present unique opportunities for proactive property investors and REITs. Understanding the dynamics of the market is crucial for maximising returns and minimising risks.

One of the primary impacts of a recession in the UK, is the fluctuation in property prices on the housing market. Unica Capital believe that a recession is not necessarily all doom and gloom. Pettyson Estate agents agree, “Entering a recession isn’t automatically bad for everybody.” The last major recession, commonly referred to as the Great Recession of 2008-09, saw varying effects across different sectors and locations. Similarly, the 2020 recession, driven by the unprecedented nature of the COVID-19 pandemic, brought its own set of challenges and opportunities. For investors adopting a long-term view of the market, the most pivotal part of any recession is the rate of recovery.

Opportunities for investors
Gladfish, highlights the potential for investors to capitalise on the market’s nuances. “Global economic recessions can bring about significant challenges, but they also present unique opportunities for property investors in the UK,” notes the article. In particular, London has performed far better than any major cities in the US and Europe since the end of the COVID-19 pandemic. And is in a far better position to recover from a UK and wider global recession. By diversifying portfolios and focusing on high-demand areas, and real estate investments with refurbishment or growth opportunities, investors can mitigate risks and capitalise on the market’s potential.

One significant opportunity during a recession is the ability to purchase properties at lower than market value. As economic downturns lead to financial challenges for individuals and businesses, distressed properties often become available for sale at discounted prices. While a downturn can hurt the short-term performance of commercial real estate, it is essential to remember that the market will eventually recover. For investors with liquid capital (such as Unica Capital), this presents a unique advantage to acquire high-quality assets at a lower cost, potentially unlocking significant value in the long term.

Despite the challenges posed by economic downturns, the UK property market has historically shown resilience and the ability to recover. The private rented sector (PRS) tends to be counter cyclical to the sales market. Even during times of uncertainty, rental demand remains robust, providing a stable income stream for investors.

A Long Term Approach
Unica Capital’s commitment to identifying, financing, and managing unmatched real estate investment opportunities positions investors to capitalise on the market’s nuances. With a portfolio comprising prime office real estate across London and international properties, such as long term rental properties in the Alps, Unica Capital offers investors access to high-performing markets with long-term growth potential.

Taking a long-term view is crucial when investing in the property market during a recession. Looking beyond short-term economic fluctuations, investors should consider strategic investment opportunities with strong potential for sustainable growth. Factors such as population growth, infrastructure development, and government policies can significantly impact the market in the coming years, influencing the performance of real estate investment properties.

Despite the challenges posed by global recessions, historical trends have shown that the UK and European property markets, in particular London, often recover after a downturn, making it an attractive option for long-term investment.

What’s next?

As investors navigate through economic uncertainties, maintaining focus, diversifying portfolios, and leveraging investment fundamentals are key. By partnering with reputable real estate investment trusts like Unica Capital, investors can seize opportunities and invest in resilient property portfolios even during recessions.

UK’s Prime Office Allure
The United Kingdom maintains its status as the prime strategic investment destination for commercial office spaces, underpinned by the resilience shown since the pandemic. London, in particular, has maintained its position as a magnet for those looking for long-term investment security through sustained prime rental growth. The city’s enduring appeal has consistently drawn property investors from across the globe. Recent data from CBRE’s 2024 European Investor Intentions Survey reinforces this notion, revealing that London is the most attractive city in Europe for investors for the second consecutive year with almost 10% growth compared to Amsterdam (2nd) with 7% and Berlin (3rd) with 6%.

Despite facing ongoing inflationary pressures and global economic fluctuations, London’s resilience has kept investor sentiment strong. The city’s unique combination of economic stability, cultural significance, and robust market potential has consistently supported a positive outlook.

Rising Investor Confidence
REITs that invest in prime offices are increasingly optimistic about the market’s prospects. One significant factor contributing to the buoyancy of the prime office market is the Bank of England’s decision to keep the base rate unchanged. For investors with ample liquidity, this presents a golden opportunity to capitalise on favourable market conditions, making it an exciting time for Unica Capital and other forward-looking property investors.

A view strongly held by Byron Baciocchi, Chairman and Chief Executive of Unica Capital, who stated in a November 2023 Property Week interview, “our own business is on the acquisition trail as we seek to build our portfolio and generate stable returns, looking for both turnkey opportunities but also those where refurbishment and repositioning work can help unlock value.”

The West End drives London’s Prime Office Rental growth
One noteworthy trend in the prime office market is the resurgence of office rentals. London, in particular, has witnessed a remarkable recovery, with prime office rentals surpassing pre-pandemic levels by 3.8%. The West End leads this resurgence, boasting an average rental growth rate of 8.8%. Other areas like Westminster and Victoria are also witnessing substantial growth. Additionally, Soho and Mayfair are experiencing the benefits of their strategic locations, offering connectivity and a wide range of amenities. This is exemplified by recent acquisitions such as Great Smith Street, Wardour Street and Poland Street.

Embracing the Return to Prime Offices
The return to prime office spaces is gaining momentum as businesses emphasise the importance of employees returning to the workplace. Major corporations, including EY, Citigroup, Lloyds Banking Group, and HSBC UK, have introduced policies to encourage office attendance. This shift is indicative of a broader trend toward reoccupying prime office spaces in attractive locations away from the traditional hubs of Canary Wharf to more connected locations like Soho and Mayfair.

Unica Capital’s prime office properties are well-prepared to accommodate a diverse mix of tenants. Some tenants are downsizing as they embrace hybrid working, while larger firms are moving from older headquarters to modern buildings with stronger environmental credentials.

Seizing Opportunities
The prime office market in 2024 offers a wealth of opportunities for investors. Turnkey investments, as well as properties that require refurbishment and repositioning, can unlock significant value in this thriving market.

Investors are drawn to the UK’s prime office spaces, driven by confidence in the market’s potential. Rising rentals, the return to offices, and the evolving needs of tenants all contribute to the positive outlook for this sector. As the industry adapts to changing dynamics, the prime office market remains an attractive and promising real estate investment landscape.

This data reports substantial increase in the volume of office space under offer, marking a 22% surge above the five-year quarterly average. Cushman & Wakefield’s data suggests that this trend is poised to continue, with an estimated 60% of the under-offer space anticipated to close by year-end, projecting an annual take-up of around 8.5 million sq ft, aligning with the figures from 2021.

London’s City, in particular, has emerged as a powerhouse, claiming 64% of overall take-up in Q3, amounting to 1.64 million sq ft. This strong performance underscores the city’s resilience and attractiveness to occupiers, defying the broader challenges faced by the commercial property market.

Confidence in London’s market is further exemplified by British Land’s strategic decision to take back an 8 story building near Regents Park once Meta broke its lease. This is despite Meta offering an alternative tenant to take the building, British Land opted to reclaim the space, citing a significant rise in office rents since the original agreement in 2021. British Land has said it expects that rents will grow at the top end of its previously guided range in 2024 across its portfolio. This move underscores the landlord’s confidence in securing higher rents amid the evolving market dynamics.

Moreover, the influx of Asian capital into London’s prime commercial property market serves as a testament to the city’s enduring appeal. High-quality office buildings with strong sustainability credentials have become focal points for Asian investors, reflecting a flight to quality. Despite the challenging macroeconomic environment, London’s resilience and efficient repricing in the property market are attracting strategic investments from Asia.

The ongoing surge in London office development, with a record 5.1 million sq ft of new construction starts, further substantiates the city’s rebound. Deloitte’s London Office Crane Survey reveals a robust development pipeline, including an extraordinary surge in refurbishment starts. With 34 schemes covering 3.3 million sq ft, refurbishments are being propelled by the anticipated tightening of Minimum Energy Efficiency Standard (MEES) regulations, aligning with tenants’ sustainability commitments. This surge in refurbishment activity is indicative of developers’ confidence in meeting environmental standards and fulfilling the growing demand for premium, sustainable office spaces in the capital.

London’s commercial property investment market is on a trajectory to reclaim a sense of normalcy, fueled by a resurgence in leasing activity, strategic decisions by major landlords, an influx of Asian capital, and a robust development pipeline. The signs of recovery are bolstered by confidence in premium office spaces and the city’s enduring attractiveness to global investors.

Outside London:
A recent transaction involving the sale of the Co-operative Group’s Manchester headquarters exemplifies the inherent unpredictability of real estate markets outside the capital. Originally appraised at approximately £210 million, the property was eventually sold for approximately £140 million, indicating a substantial loss for the seller. This case, while seemingly isolated, underlines the broader challenges investors may encounter when speculating in regions that may lack the resilience and stability of London.

Market sentiment, prevailing economic conditions, and the actions of other investors are factors that can significantly influence property values. In the Manchester situation, the reduced sale price reflected various market dynamics and shifts in demand.

The challenges faced by regions like Manchester underscore the strength of London’s real estate market. In Manchester, the initial property price predictions were contingent on the anticipated reduction in travel time to London and Birmingham facilitated by HS2. However, the recent cancellation of the HS2 line has prompted the readjustment in the market and cancellation of hotel and office builds. This scenario stands in stark contrast to London, where established hubs like Soho, Mayfair, Fitzrovia, and Belgravia continue to thrive, unaffected by the uncertainties that have impacted regional markets. The cancellation of HS2 is indicative of the nuanced risks associated with investments beyond London, emphasising the stability and resilience inherent in the capital’s property market.

The London real estate market:
In contrast, London consistently presents itself as a secure option for strategic investment. According to BNP Paribas Real Estate, prime office rents in London’s West End are anticipated to reach an exceptional £300 per square foot by December 2024. Demand for office space in London consistently outstrips supply, with rents exceeding £150 per square foot in prime locations.

Simon Knights, head of West End agency at BNP Paribas Real Estate, highlights the positive trajectory of the London real estate investment market, with rents regularly surpassing £200 per square foot. He explains that the key drivers of this growth are leasing events, business expansion strategies, and the demand for top-tier talent, all of which underscore London’s resilience as a thriving business.

The London property market benefits from a limited development pipeline, which helps maintain prices and appeal. Increasing demand for high-end properties, when appropriately priced, keeps the market resilient.

In contrast to the central London property market, venturing into property investment in wider Britain poses certain risks due to the unpredictable nature of these markets and their susceptibility to external influences. Conversely, London remains a secure option, with prime office rents on a trajectory to reach unprecedented levels. For investors seeking a more stable investment environment, London continues to be a preferred choice within the ever-evolving property landscape.