Those looking back at 2024 are unlikely to consider it a stellar 365 days for the regional real estate sector. But, with a General Election, continuing global unrest and interest rates falling more slowly than anticipated, some will argue the industry was always up against it and has done well to respond to those challenges.
Despite investment volumes being down across most locations, there was a glimmer of hope in the strong performance of certain areas, such as regional office leasing, with the 'Big Six' markets on track to beat the five-year average and the majority seeing continued rental growth.
In the retail sector, out-of-town parks sold like hotcakes, with major REITs, such as British Land, making a beeline for regional properties where the market was ‘less hot’ than around Greater London. Experts also say some prime shopping centres are making their way back onto the radar of investors for the first time in years.
The industrial sector is still learning to view the Covid years in isolation, with leasing and investment volumes falling below the numbers recorded during that period, but doing well in terms of the overall, longer-term picture.
CoStar News spoke to industry experts across the regional office, retail and investment markets to highlight the biggest deals and trends of 2024.
Mega-deal return
Bank of New York Mellon's 200,000-square-foot letting at MEPC's 4 Angel Square offices in Manchester marked the first truly large regional office letting following the Covid pandemic and the return to work.
Deciding to relocate from its two existing workspaces in the city, the deal - completed in the third quarter - was the largest regional office transaction in four years, according to the developer.
The bank's letting at the Grade A facility was also the largest of 2024, alongside Aston University's acquisition of 10 Woodcock Street from Birmingham City Council, with that building, circa 200,000 square feet, set for refurbishment.
Lloyds Banking Group's prelet of 110,000 square feet of offices at John Street overlooking Callaghan Square in Cardiff city centre was a stand-out transaction at the end of the year.
Education providers and professional services firms emerged as two of the leading tenant groups to take space in the regions this year, with their activity helping to lift take-up figures across the Big Six and beyond.
Global Banking School's 69,000-square-foot deal at 1 Brindleyplace in Birmingham was a prime example of this, giving the wider Brindleyplace development its largest traditional letting for more than a decade and a half.
Larger deals like these mean the Big Six markets are expected to exceed more than four million square feet of take-up by the time the year is out, according to JLL, marking an 8% improvement on last year, and beating the five-year average.
Across the 15 key regional office markets, LSH says take-up is expected to surpass 8 million square feet by the end of the year, reflecting a 10% uplift on last year's total. They include Bath, Belfast, Birmingham, Bristol, Cardiff, Exeter, Glasgow, Edinburgh, Leeds, Leicester, Liverpool, Manchester, Newcastle, Nottingham and Sheffield.
Data from Cushman & Wakefield's Midlands office team showed that Grade A take-up, like in many other regions and cities, dominated its market, and is on track to make up 60% of all transactions. The firm said it reflects occupiers' desire to secure the best buildings for post-Covid workplace expectations with many regional cities seeing development rates slow.
Cushman's head of office agency, Scott Rutherford, explained that increased leasing activity from the education sector was crucial to the Midlands' highest take-up volume during the first to third quarter of a year since 2015.
“The increased take-up levels in the Education sector have been important for the market, as Grade B and C buildings become repurposed where they might otherwise become obsolescent,” he added.
Other larger deals waiting in the wings include Auto Trader's talks with Bruntwood SciTech at Three Circle Square, where it is looking to take 130,000-square-foot space, revealed by CoStar News.
According to market sources in Birmingham, the GPA is also closing in on a 100,000-square-foot-plus deal at 120 Edmund Street, while Atkins is known to be in talks to relocate to around 54,000 square feet at the Welcome building in Bristol, also reported by CoStar. The talks show strong leasing momentum for next year.
Paul Pavia, joint head of development at MEPC, the real estate development and asset operating platform of Federated Hermes, oversees a number of the largest commercial schemes in the regions, including Manchester's Noma and Leeds' Wellington Place developments.
He told CoStar in a statement that the Leeds office market was stabilising after the disruption of the pandemic but warned a lack of development and good-quality supply in core cities across the UK would present their own challenges over the next few years.
Market settles
"After a period of uncertainty around space requirements following the shift to hybrid working, businesses are now generally settled on their working space requirements.
"In fact, some businesses who made an early call to downsize are now re-visiting those decisions and it feels like generally demand for high-quality office space has never been stronger in Leeds.
"However, there is now a challenge to meet this demand as older obsolete office stock is repurposed and removed permanently from the market, and constrained investment means that very little new stock will be added to the supply over the next few years.
"This is a potential concern for the growth of regional cities and the economy in general as the service sector, which is reliant on office space, is the UK’s largest industry and a key driver of economic performance.”
He added: "This supply demand imbalance has led to unprecedented rental growth, which shows no signs of abating and rents for the best quality, best located refurbished space now exceed the rents achieved from the last phase of new build development which is quite remarkable."
Pavia added that good-quality office refurbishments would be the answer to filling the office supply gap in 2025, while the regions wait for new-build developments, highlights its decision to launch the refurbishment of its 2 Wellington Place office.
Prime focus
Property experts predict larger numbers of obsolete offices will be sold at lower prices or repurposed for other uses, including residential and hotel, next year. But there was activity at the other end of the market, with a number of prime schemes selling or going under offer in 2024.
Bristol was one of the markets which saw a flurry of activity as numerous schemes were put on the block and sold in the first half of the year. CBRE Investment Management completed its purchase of Halo from Tesco Pension Fund for a fee understood to be in the region of £73 million, with the deal starting in 2023.
But an even bigger deal is brewing in the city, with UK real estate investor Melford Capital under offer to buy CEG's EQ for around £100 million, one of the city’s most prime offices.
Ian Lambert, investment partner at Hartnell Taylor Cook, told CoStar News that the last 12 to 18 months had been some of the most challenging he had experienced in his career, describing the Bristol market at the start of the year as "turgid".
However, he insisted the market "always finds a way to operate", with a couple of interest rate cuts helping to give the market some much-needed momentum.
"At the beginning of the year, you couldn't sell office buildings for love nor money for a variety of reasons. Now all of a sudden, we've got three in lawyers’ hands and a couple of them went to bids.
"What that does in the office market is that - if you know you have an out - any buyer can say, 'right, I can now buy a building because I know where my exit yield is going to be', and it gives them confidence coming in, and we've certainly seen that start to happen."
He added: "We are getting some demand, there are deal happening. So, I think we're going to end up on a bit of a high and I'm hopeful that will follow through to 2025... people are getting a bit more comfortable and [vendors’] pricing aspirations have lowered to where the market should be".
The largest investment deal to complete in the regions was accomplished by Ashtrom Properties UK and revealed first by CoStar News, which bought Leeds' Central Square for £78 million.
Two of the largest schemes to be put on the block during 2024 both came from M&G, which continued its disposals strategy of regional offices. They were 2 Snowhill in Birmingham, where it is quoting more than £100 million, and Manchester's 101 Embankment, where it is asking for bids in excess of £80 million. Both have yet to sell.
French eye Scotland
Glasgow was one of the busier markets for significant office sales across the regions. In particular, it was a popular hunting ground for investors from across the channel, with Iroko Zen completing a circa £50 million deal for Morgan Stanley’s offices at 122 Waterloo Street, the largest in the city this year.
At the end of the third quarter, investment volumes in Glasgow were almost 50% up on the same period last year, at around £198 million. Murray Strang, a partner in Cushman & Wakefield's capital markets team, described a feeling of increased optimism at the end of the year, predicting "better times ahead".
He argued that the country's investment figures would have been far worse off without the larger deals completed by French investors. He said: “The office sector is still going through a tough time. In terms of the buyer pool, it remains relatively limited for anything other than the absolute, best-in-class, core offices, such as The Mint building in Edinburgh, [which sold to Pontegadea for £42.5 million].
"The vast majority of stock that has come to the market has not been that Grade A stock [and] investors have on the whole been hesitant to enter into the office market unless it gets to a certain price point, when the 8%-plus yields start to attract a very different type of value-add, opportunistic type of purchaser.
"It's also where we've seen the French SCPI entrance into the market. That type of property very much meets with their requirement of higher yields and a certain level of income and covenant strength, but at the same time, asset management opportunities to improve value and ride out, hopefully, some yield contraction.”
Parks paradise
French investor Iroko Zen returned to the Scottish market again in November, however, this time, it was for Barrhead Retail Park in Glasgow, which it picked up for £14.6 million. It was not alone in buying regional out-of-town retail parks, with one of the UK's largest REITs, British Land, aggressively targeting the retail subsector.
British Land has invested more than £720 million in retail parks since April, finishing the year with a circa £28 million deal for Orbital Retail Park in the West Midlands. It refers to itself as the market leader in this space, with the lion's share of the UK's retail park portfolio.
Low void rates, increasing rents at prime schemes, and no planned development of future retail parks are a handful of reasons why the REIT and others are focusing on buying up retail parks.
Redevco is another party that has gone big on retail parks, completing a £518 million deal with Oxford Properties for a portfolio of 16 retail parks in one of the biggest retail transactions of the year. British Land itself carried out a £441 million retail park portfolio deal earlier in the year, taking seven retail parks from Canadian investment giant Brookfield.
British Land's head of retail park asset management, Matthew Reed, told CoStar News during a site tour around its Orpington, London, scheme in April that the price of parks made them an ideal investment for the REIT and others.
He said: "The majority of assets are often between £25 million and £50 million. Those are really tradeable lot sizes and accessible, and that again makes it attractive as an investment proposition because you are not worried about buying into an asset you then cannot sell at a later date."
During that visit and before the large Redevco portfolio deal, Reed said British Land was seeing many other funds becoming active on retail parks, with "war chests building up". He said this was making the REIT look outside of London, where the market was “too hot”.
"Because we've got the best skillset from an asset management perspective, we are much more comfortable looking out into the regions. We run a lot of assets throughout the UK, so we are a bit more agnostic about taking in towns where other investors feel there is risk," he said.
Strang, from Cushman & Wakefield, said the sector was seeing “some green shoots of recovery” after sustaining a tough period, with retail parks playing their part in this reversal of fortunes across the regions.
He added: “There definitely is a lot of demand for good-quality, reliable, out-of-town retail parks, where we see clear evidence of strong customer activity and long-term sustained requirement for these types of facilities.”
Prime shopping centres
After being left to one side in the last few years, regional shopping centres have showed signs of revival following multiple deals for prime schemes, in some cases fetching sizeable prices. There are number that rumble on.
With many of the top 20 to top 30 shopping centres in the UK recording low void rates, such as SouthGate Bath, investors are taking note of increasing rents and customers' returning appetite for bricks and mortar shopping. This has seen many brands, including Zara, Primark and TK Maxx, increase their portfolios.
Cushman & Wakefield's head of UK retail and leisure, Tom Bouvet, told CoStar News that plateauing online retail sales, which stand at around 26% of all retail sales, were driving tenants to open up physical stores again following the pandemic.
Bouvet said: "[Online shopping] has its peaks and troughs - Black Friday and Christmas for example - but that 26% is where it has been for the last two and a half years. Off the back of it, retailers are expanding both their portfolios, but also upsizing stores... because customers are heading into shops.
"I really believe that we will see international brands going beyond London, we are already starting to see signs of that. Those markets want those brands that are in London, and they will do a lot to get them to differentiate their schemes."
The largest deal shopping centre sale of the year and single retail property was clinched by Landsec, as it bought Liverpool One for £490 million, acquiring sovereign wealth fund Abu Dhabi Investment Authority's 69% stake along with others' stakes, as revealed by CoStar News.
Another large acquisition occurred early on in the year, when Lone Star acquired Aberdeen's Union Square from Hammerson for £111 million. In Sheffield, British Land sold its 50% stake in Meadowhall Shopping Centre to its partner Norges Bank Investment Management for £360 million.
Royal London Asset Management also completed its purchase of a 50% stake in centre:mk, with market sources suggesting it paid around £140 million, representing a yield of 9%, as revealed by CoStar News.
Khaled Alanani, head of real estate finance at Bank of London and the Middle East, told CoStar News that 2024 had seen a "massive shift for retail" properties, suggesting the sector will continue to attract attention next year.
He said: "Retail has gone through a massive structural shift. I think a lot of investors now are slowly coming back into some of these investment opportunities.
"Investors, who are traditionally very risk-averse, are now viewing some retail opportunities in a different light that perhaps they now meet that risk profile.”
Overall, Alanani described 2024 as a "relatively tough year", with the sector experiencing its fair share of political and economic ups and down. He says Gulf Corporation Council investors remain keen on the regions due to their "risk-reward profile".
He says the UK could yet become a stronger investment location for his clients, with the jury still out on how Trump's return to the White House will affect the deployment of capital between the US and UK.
“The GCC holds the UK to a very high standard, and they expect the UK to consistently meet it, but [understand] it is not immune to the headwinds in the past couple of years.
"Investors raised concerns about this, but similar have been raised about other places they invest in, including the US, but it does feel like we are turning a corner and we're optimistic that investors will allocate more capital to the UK in 2025.
"Lower interest rates and cost of debt is just one part of it, but also there's more certainty and clarity over the government's agenda and all of that will lead to increased investments, particularly in the regions."
Nick Penny, investment director and head of Savills Scotland, added: “From a broader regional perspective, overseas investors have been the most active in 2024, with UK regional markets continuing to attract capital due to significant pricing discounts compared to major European markets and central London.
“In Scotland, we will continue to see French SCPIs and Israeli capital active but will also see private Middle Eastern investors taking an interest in higher yielding core assets in the Big Six regional markets. Additionally, private capital from other European countries, including Spain and the Czech Republic is also sporadically entering these markets and are likely to continue to do so.
“Given current pricing levels and positive occupational metrics, we anticipate that liquid and decisive investors will continue to eye the UK office market.”
Forgetting Covid-19
"Our big-box numbers were again in-line with the pre-Covid average, at around 24 million square feet, and we think that's a fairly decent year. It's not blowout, but it was never going to be," says Robert Taylor, DTRE’s head of research, data and insights.
In 2024, a number of large industrial leasing deals were signed. Many occurred during the first half, with owner-developer GLP behind of a number of them, including Bleckmann taking circa 600,000 square feet at Magna Park Corby, and Nike for an even bigger 1.3 million square feet, build-to-suit deal at the same location.
CoStar News interviewed GLP’s UK boss Bruce Topley in September, who explained that the developer was installing features, such as fishing lagoons and country parks at its schemes to appeal to modern industrial occupiers.
During that interview, Topley argued that the messaging around the sector needed to change to ensure its role in the UK economy is given more recognition by the government, which is pledging to reform planning to ease the applications backlog and push through major infrastructure projects.
Topley said: “It surely is incumbent on our sector to communicate what we do properly. We all try and do the right thing for our businesses, our communities in a responsible way and, though organisations like the BPF, we can communicate and collaborate with government so we can work together delivering what is important for the country as a whole."
Firms continued to consolidate their portfolios, with deals around the 100,000-square-foot mark proving more popular than in previous years. Others also pushed into more sustainable buildings with higher EPC ratings.
DTRE’s Taylor told CoStar News that a lack of development over the next year to 18 months will drive down vacancies rates to 6% by the middle of 2025, falling from around 6.9% at the end of this 2024.
But he highlighted signs that the e-commerce juggernaut has "slightly run out of steam" after the high activity of the Covid years, leading to more usual levels of big-box take-up, returning to those seen before the global health crisis.
"For a period, Amazon was taking 25% of the market, doing around 10 million square feet a year alone – that's not there anymore, and the likes of Boohoo and Asos, the pureplay online retailers, they've got their own issues, and I don't think they're going to resolve themselves anytime soon. So who's going to pick up the slack?
"I'm not saying there won't be a good year, or an online in trend year, but there is no sector there that is a standout. There is manufacturing and EV charging, but I don't see these businesses taking half a million square foot warehouses, I think that'll be done in smaller units around Cambridge and Oxford."
Amazon may not be eating up space at the rate it was a few years ago, but it was still behind two of the largest acquisitions of 2024 which bookended the year. In January, CoStar News revealed the e-commerce giant had returned to the UK after a circa two-year hiatus, signing a deal for circa 2 million square feet at Segro's flagship Northampton scheme.
Amazon's return to acquiring large industrial developments at the beginning of the year reflected its belief that the UK economy would improve at the end of 2024 and into 2025, according to market sources, expanding its warehouse footprint accordingly.
Although official data shows the UK economy shrank in both September and October, Amazon continues to seek opportunities, with CoStar News revealing this month that it is eyeing 1 million square feet at Symmetry Park Kettering, owned by Tritax Big Box. It is also understood to be on the hunt for space around Bristol.
Taylor argued the company's recent moves in the UK industrial market wouldn't necessarily encourage others to re-enter or expand their own portfolios. "Amazon will do what they need to do. They will be recycling out of the older, first generation budlings they moved into almost 20 years ago now, and you'll see more upgrading of those facilities. But [I don't think] they'll come back in the volumes seen previously."
Investors circle multilet
On the investment side, DTRE's Taylor says fewer cuts to interest rates this year have slowed deals for big-box units. He says money hasn't flowed to the market as easily as it was being predicted before the start of 2024, with people instead refinancing and "kicking the can down the road".
"On the capital markets side, it's been difficult to get the real momentum into the year because every time you think things are getting going, you have something else that blindsides you. We had the election, and when that was dealt with, it was the Budget, and then Trump.
"Every step of the way there seems to have been some sort of excuse. That doesn't mean volumes are down, the market is still on for a fairly decent year, with our figures showing the year will end slightly above the pre-COVID average, but nowhere near the 2021 and 2022 years.
"But we'll likely never see [that activity] again, so volumes are down [in comparison]. We have to eradicate that from the mindset. Industrial logistics has done well again, and we'll be close to around £7 billion or £8 billion, are there are a couple of chunky deals that should give a good start to Q1 next year.”
Investment highlights for the year include Lone Star buying a major portfolio of UK assets, principally industrial, from Charles Street Buildings for around £600 million. The portfolio included the 575,000-square-foot Thurmaston Industrial Estate and 1 million-square-foot Hilltop Industrial Estate in Coalville.
Royal London Asset Management Property also disposed of a 1.2 million-square-foot portfolio of industrial and logistics assets to Ares Management Real Estate funds for around £200 million in January. That portfolio consisted of a mix of multilet industrial and single-let distribution assets in South East and Midlands logistics markets
While there were a few single-let boxes which traded for big prices, like KKR and Mirastar's Mountpark Warrington Omega II for around £100 million, multilet industrial parks proved a very popular option for investors due to their attractive returns and diversified income base, as well as constrained supply and management opportunities.
Investors such as Royal London were active, with CoStar News reporting in December that it was under offer to buy Beeches Industrial Estate outside Bristol for around £48 million, which would reflect a net yield of 5.4% to 5.5%.
Blackstone's Indurent urban logistics platform also bought developments totalling 275,000 square feet from Chancerygate for a combined price of around £60 million. The business, formed via the merger of its specialist multilet industrial property company, Industrials REIT, and logistics developer and manager St Modwen Logistics, had only launched on 1 July.
Kevin Mofid, head of EMEA logistics research at Savills told CoStar News that total industrial take-up for 2024 was expected to reach around 30 million square feet by the end of the year, which would beat last year's figure. He said that both the East and West Midlands had performed strongly, with London and the South East doing less well due to an "affordability quandary" faced by tenants.
Mofid added that industrial investment volumes would also be higher in 2024 than in 2023, predicting the market would see improvement again next year. He explained why the multilet market had proved popular with investors in 2024.
"It would seem that investors are looking past some of the softness in the occupational market at the moment because they still buy into the story, and I think, largely, that story remains intact.
"With multilet, you've always got the option for greater asset management, to improve the rental tone. Your tenant mix is slightly more diversified, all of those things whereas with bigger box, is slightly more binary.
"But that said, our investment figures for bigger box are going to be slightly higher this year as well, so it's not as if the bigger box side of things isn't performing well, but for the capital that is active in the market at the moment, the multilet space gives you that propensity for asset management."
