It has been another difficult year for the commercial property investment market, with continued economic malaise keeping growth largely in check. What have been the key trends in 2024 and what can investors expect in the 12 months ahead?

Growth from a familiar space in 2024

The main bright spot for the commercial property market in 2024 has been the industrial/warehousing segment. It has undoubtedly remained the market engine, although it hasn’t performed as dynamically as in previous years, with consolidation a key trend.

Nevertheless, there has been significant investment, not least from big firms (Nike, M&S, Greggs, etc.) keen to optimise their operations and future-proof supply chains. A lack of quality space, location-based connectivity and sustainability have all been an underlying themes.

Interestingly, the clamour for “strategic sheds” – based on proximity to urban city markets and transport links – has dimmed somewhat, reflecting perhaps a degree of segment maturity and continued consumer spending caution as economic struggles remain.

Other commercial property bright spots in 2024

Away from industrial/warehousing, life sciences has performed positively, although its niche status has limited its overall impact on the market. The key drivers behind growth in 2024 have been a lack of existing facilities, longer-term tenants and premium rents, coupled with an ageing population, and they should stay in place for 2025.

Another segment that has had a better year than most is residential. Although interest rates and house prices have tempered movement to some degree, demand has continued to outstrip supply. Notably, this has led to a significant change in government policy with regard to housebuilding, with a fresh emphasis on ramping up construction. This could bode well for 2025, although much depends on investment capability and spending power.

In addition, within residential, student accommodation has had a steady year – continued solid demand has been a key segment trend. Looking ahead, dedicated student accommodation looks to be a key investment focus, with private lets set to be affected by reforms in the area.

A tough year for traditional market heavyweights

In contrast to industrial/warehousing, office space has had a much harder time of it in 2024. While some light has appeared at the end of the tunnel toward the end of the year, there is little to look back fondly on.

The return of the commuter has largely failed to materialise and interest rates have continued to weigh heavily – both have been instrumental in keeping segment performance muted. There has been a notable push to get people back in offices towards the end of the year – Amazon has been among firms taking a stricter approach – and should this trend gather momentum, it could help give office space the fillip it needs.

However, there is no clear indication as yet that this will happen, and looking ahead, growth in 2025 may prove to be continued to be focused in key sub-areas, with prime and green sites in big cities likely to stand out.

What does M&S redevelopment say about retail in 2025?

Similar to office space, it has been another year of struggle for retail and in particular high-streets. Ongoing austerity and the impact on spending power have been key. Sustained economic upturn remains vital to any kind of meaningful uplift in this segment.

That said, retail hasn’t been without its positive elements. Prime shopping centre sites have brought growth, with experiential-led development a growing trend. Interestingly, the proposed redevelopment of the M&S Oxford Street store features will feature a combination of retail and office space and a café and a gym. This is widely reflective of a repurposing trend in the sector, with property turned into residential and leisure assets.

Again, sustainability has been a key trend that looks set to continue in 2025, with owners having to meet both client expectations and new regulatory demands relating to environmental standards.

What to look out for and an investor must-have in 2025

If 2024 felt like trying to push forward with the handbrake on for many key commercial property market sectors, then owners and investors will be hoping the constraints that impaired performance are eased in 2025. As ever, much will depend on economic conditions and related policies.

At present, with economic performance remaining in the doldrums, it is difficult to see any sea change in the commercial property market, in early 2025 at least. As such, key trends in 2024 are likely to remain in place, with familiar segments offering the best prospects.

Overall, there will be opportunities in the year ahead for switched-on investors and, given market conditions, accessing finance in an expedient, affordable and flexible way will be key to taking them. With this in mind, your choice of commercial loan and mortgage provider will continue to be absolutely critical in 2025.

To find out more about A&T Business Associates services for commercial property investors, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.