Kevan Carrick: Finding opportunity in 2024’s property market

As a new year begins, Chartered surveyor Kevan Carrick, co-founder of Newcastle-based JK Property Consultants, looks at what the next 12 months may hold for the property sector, highlighting the opportunities and challenges to meaningful progress.

 

The next 12 months will be challenging for property owners and occupiers.

Commercial property occupiers will continue to incur higher energy costs and be under pressure to achieve net-zero in the foreseeable future, both in the occupation and operational processes.

This will mean higher revenue costs and greater pressure on profitability, which will be particularly acute for smaller businesses.

The lower demand for property generally will see little increase in rents and an increase in the incentives available for occupiers taking leases and encouragement to agree longer leases.

The pressures will require good relationships with landlords to consider how to improve the insulation of existing buildings’ fabric and where those improvements increase the value of the landlords’ investment, in both revenue and capital terms.

My activities as a non-executive director at the North East Business Innovation Centre have shown investment in retrofit of insulation of the fabric and alternative energy investment reduces operational costs.

The provision of European funding ended in July 2023, with the UK Shared Prosperity Fund aiming to ‘level-up’ the UK by building pride in place, supporting local businesses and people and skills.

It will be delivered by local authorities – but councils are under tremendous pressure, and the fund’s roll out is expected to be challenging.

Property investors are experiencing a dynamic shift in demand and needs of occupiers.

More occupiers are under cashflow stress, and are seeking shorter term leases, and there are pressures on rental growth too.

Returns on investment are not likely to improve in the next 12 months.

Residential property has seen a lowering of demand over the last few months, and this is likely to continue over the next year.

While lower interest rates will help existing owners and house re-sales, first-time buyers will continue to struggle to enter the market.

Rents are also increasing because of the shortage of houses and flats, which is adversely impacting the condition and quality of accommodation.

The value of property and the unstable market suffered over the last few years will continue until there is an increase in the supply of houses for sale and to let, which includes social and affordable homes.

Successive Governments that have failed to deliver the minimum 300,000 per annum have exacerbated the problem, and will continue to do so until there is a greater supply delivered.

Such improvement in the delivery of more houses requires a paradigm shift in the housing sector on delivery mechanisms, particularly in the supply of land, greater contributions for social and infrastructure needs and construction of houses amid demand for higher standards around insulation and net-zero status.

The planning system is proving to be unfit for purpose and requires significant investment with resourcing and improvement in operations from national strategies to local delivery.

The recent Regeneration Act 2023 provides foundation for this change, but a highly focused approach for all is needed, particularly around housing need and cutting through the matters that delay or frustrate home delivery.

Continued austerity is putting stress on public sector delivery and business operations.

There is a need to ensure greater use of mediation to facilitate dispute resolution.

This is a powerful tool but requires a willingness to use it and be innovative in new areas such as planning, development and construction.

However, there will be brighter sectors in property, particularly in industrial and manufacturing.

New demand from inward investors and foreign direct investment, with the growth of new and innovative sectors, such as energy, automotive and life sciences, has benefited the region.

This will continue to help grow the regional economy, driving development and investment.