After another year of challenges within the property sector, how are property developers and investors feeling about 2024? And due to the ever-changing landscape, where is the untapped potential within the sector?
In our recent webinar, Priya Chauhan, Debt Finance Director at OakNorth shed light on the underappreciated assets that are expected to experience significant growth in the coming year. Throughout the session Priya also provided actionable insights on how real estate investors and developers can position themselves for success in the year ahead.
Since joining OakNorth in 2015, Priya has completed several hundred million pounds worth of loans on behalf of the bank. With her wealth of experience, she has supported businesses across various sectors and regions, helping them navigate the dynamic property market.
So, what happened in 2023?
A quick pulse check of the audience – which was made up of property developers, investors, debt funds, brokers, and other key business influencers – found that over half (52%) said their organisation saw less activity throughout 2023. Priya noted how this could’ve been due to a range of factors such as interest rate increases making borrowing more expensive, and fluctuating house prices, reducing appetite to sell. In general, we saw other banks withdrawing from SME lending or vetoing entire sectors because of the economic downturn, but we believe that times of challenge can present huge opportunity.
At OakNorth, we’re positioned to help our customers take advantage of opportunities as they arise, no matter the season. In fact, last year we lent a record £1.7bn to UK businesses across the board. And, while we still have a strong appetite for traditional development investment projects, in 2023 we increasingly supported our customers with more structured real estate transactions such as asset management, investment hybrid facilities, repositioning of assets, operational real estate, and commercial LED development transactions.
Trends for 2024
Looking ahead, here’s Priya’s round-up of the underappreciated assets to get excited about this year:
Grade A office spaces
In recent years, many lenders have worked on office deals with aggressive yields and at too high loan-to-value and are now licking their wounds and withdrawing from lending to offices. But now is actually the time that banks should be lending into assets such as offices based on rebased rents and rebased yields. At OakNorth, we’re lending based on live time real market rent and live time real market yields, and are very keen to continue to lend through the cycle, especially if it’s a category A office or to a business that has a category C/D space that they want to invest in to bring up to category A, or consider alternative use.
Self-storage
Self-storage assets remain high on our radar as they continue to prove their resilience as a growing sector. We expect to see some softening in occupancy rates, but this will be largely offset by an increase in rental rates close to or ahead of inflation. We are also excited about some innovative concepts, such as drive-in and new technology, that will continue to diversify the sector.
Open storage
Building on self-storage, another untapped sector is open storage (which is basically an empty space that sits adjacent to an industrial site i.e. a warehouse). Over the last decade, we’ve seen more industrial sites popping up across the South East and within the Golden Logistics triangle of Manchester, Birmingham and Leeds. That’s been driven by several factors, including: the growth of online shopping (which surged during COVID), and Brexit (which has disrupted international trade flows, meaning more stock now needs to be held in the UK). Because of this, we’re eyeing open storage as a particularly attractive asset class in 2024.
Lab space or life sciences
Traditionally, this asset class has been a strong area for growth in London, Cambridge and Oxford. And while availability of purpose-built commercial lab space in the UK is quite limited, we predict that conversions of office spaces to labs or vice versa will continue to present a strong investment opportunity well into the new year. In fact, CBRE predicts there will be an additional 2m sq. ft of lab space delivered in the UK in 2024.
How to set yourself up for success in 2024
As Priya says, if property investors and developers work with their lender to structure some robust facilities, they will be more prepared to seize opportunities as they arise by executing quickly on transactions. In the same way as if you were looking to purchase a house, you’re going to be in a better position if you’re a cash buyer versus a mortgage buyer. So, don’t be afraid to shop around and look beyond your clearing bank – lenders like OakNorth may not be the cheapest but can structure a facility based on your unique funding needs, and work to timeframes you need to be in the strongest negotiating position.
As the webinar drew to a close, we were excited to uncover that the majority (72%) of our audience are feeling bullish when it comes to the property market in 2024, despite last year’s challenges. Here at OakNorth, we are also feeling optimistic and look forward to another year of supporting our incredible customers in the property sector. We would like to thank Priya for sharing her insights for the year ahead.
If you would like to discuss your 2024 funding needs with one of our property experts, please get in touch today.
