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Real Estate
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2024 Outlook: Real Estate
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See the big picture
While we’re not out of the woods yet, there are reasons to be cheerful as we head into the new year. The real estate sector has demonstrated its ability to manage risk amid difficult economic circumstances over the last year, and that gives us confidence in a more positive market outlook, and this aligns to our own growth strategy for 2024 and beyond.
Head of Real Estate, Barclays Corporate Banking
A return to stability
With interest rates appearing to have peaked and inflation seemingly more under control, we’re already starting to see a shift in mindset in the real estate sector as it recalibrates to the new normal, with the expectation that rates will remain at elevated levels for longer, however there is an increased confidence in rates reducing over the medium term. This is in stark contrast to the disruptive effect and lack of confidence we saw in the sector as a result of the unpredictable rate environment during 2023. We have also experienced value correction across all real estate asset classes, and whilst we may not have seen the end of that, there is definite sense of increased stability, which should lead to higher transactional volumes in 2024 and increased levels of development activity.
Indeed, there are reasons for the sector to be cheerful. Many of our real estate clients have demonstrated their ability to manage risk in extremely testing conditions over the last year and are now looking forward with renewed confidence. In the residential sector specifically, new housing development is still expected to be at lower levels than we have seen in recent years, however the UK market still faces a fundamental undersupply of housing. Mortgage rates and affordability will continue to be an influencing factor in the traditional build-to-sell homes market, while the now well-established build-to-rent market is likely to see little or no let-up as tenant demand continues to increase.
At Barclays we are well placed to support both existing, and new, clients as increased levels of opportunities arise. We have our strong growth ambitions for the real estate business and are keen to increase our lending book into a recovering market.
Financing the transition
Real estate businesses will need to continue to manage the transition risks associated with achieving their environmental, social and governance (ESG) objectives. Although some are ahead of the curve in terms of managing the environmental impact of their estates, others are still just starting the journey. However, from both a regulatory and moral standpoint, everyone – regardless of size, subsector or assets class – will need to be focused on tackling these issues.
Bringing legacy real estate portfolios up to ESG standards, particularly retrofitting older buildings that haven’t seen much investment over the years, will require significant advice, guidance and finance support, whether through specific transition finance solutions or flexibility around existing bank facilities. At Barclays we have a range of financing solutions, to help support clients through their own ESG journey and encourage the development of more sustainable new housing product in the UK.
Access to finance and liquidity will be key for the real estate sector in 2024. Fortunately, the finance market is stable and the ability to readily access finance is most certainly there.
Head of Real Estate, Barclays Corporate Banking
Avoiding stranded assets
Across the sector, we’re all aware of factors increasing the risk of landlords being left with stranded assets – evolving efficiency requirements, broader ESG regulations and the changing nature of occupier demand will drive more innovation in Landlords thinking about how they need to invest in their estates. We should expect to see more radical overhauls of buildings which may require lender flexibility. Taking this further we should also see an increase in “change of use” approaches where the existing purpose of a building is no longer financially viable.
It's crucial that we see the right levels of investment in this regard as a growing supply of stranded assets is not helpful for the sector and the societies in which they exist.
Key takeaways
Consider interest rate hedging
In a higher-for-longer rate environment, businesses should consider ways to manage and hedge against interest rate risk to provide a level of security for unexpected events, while reducing volatility and improving returns and cash flow.
Don’t delay your ESG journey
Although timelines on some environmental commitments may have shifted, ESG factors will increasingly be critical to long-term business success. Organisations should ensure they have a robust strategy in place to progress on their ESG journey at pace.
Explore your finance options
Financial sector stability, along with the range of solutions available, mean real estate businesses are well placed to access the finance necessary to capitalise on market opportunities and meet the necessary standards and regulations, which may include considering the commercial and reputational benefits of sustainability-linked finance options.
Keeping fraud front of mind
Fraudsters are as active as ever across the real estate sector, impersonating our colleagues and attempting to defraud our clients. To help protect you and your business we have a wealth of resources available. You can view our quarterly fraud webinars and take a look at our other educational resources on our Fraud Protection Hub.
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