Sentiment around pricing also improved across all property sectors compared to last year.

Nick Harris, Savills Head of UK and Cross Border Valuation, says: “Positive sentiment is returning, with the living sectors, residential development and prime logistics most favoured by the London lender and investor community. It is interesting to note the divergence of views on where the markets are heading has tightened across most asset classes, suggesting greater comfort has been reached on price discovery.”

Savills observes that 2023 ended with around £40bn of assets traded, down significantly on historic levels. And, despite the early optimism for the market in 2024, the transactional data from the first quarter of 2024 represented a Q1 12-year low. However, there have been some high profile transactions concluded and there is an expectation that volumes will improve as the year progresses and the recovery takes hold.

Not surprisingly, given the low transactional levels, new loan originations were at their lowest level since 2012 with the recent Bayes survey suggesting only around £32.6bn was originated, down a third on 2022. Much of the activity was focused on refinancing with many lenders increasingly working with their borrowers to restructure loans. 

Nick Harris continues: “We have seen some forbearance from lenders but clearly at some stage, these historic loan positions need to be addressed. Many lenders have told us that they expect substantially more activity in this space over the next 12 months. Of course, with higher borrowing costs and declining values in many sub-sectors, when investors come to refinance or restructure a loan, there is a risk that there will be a gap between the level of debt required, and the amount of debt lenders are willing to offer and this raises a question over how the funding gap will unravel over the next few years.”

Addressing the commercial property market, Mat Oakley, head of commercial research at Savills, notes that while UK investment volume has recovered from its low in Q3 2023 and prime yields have started to harden, investment activity is still being held back by both expectations of recovery and the hunt for distress.

He comments: “The post Great Financial Crisis period suggests the peak in distressed sales will come in the next couple of years. Some sectors will recover quicker when interest rates come down especially in sectors where there is conviction or mispricing and we’re already starting to see yields harden for retail warehouses, industrials and hotels.”

On pricing, Savills notes the market is still exercising caution until trading volumes are normalised but believes pricing is close to, or at the bottom for many prime sectors in the UK. Overall, pricing is currently around 25% down from June 2022, albeit this varies significantly across sub sectors.

From a residential perspective, Savills highlights that there has been a reversal of pandemic trends with commuter locations performing stronger than rural and lifestyle locations. In London flats are outperforming houses and UK house prices are expected to grow by 21.6% by 2028.

For the build to rent sector, there was £4.5 billion invested into the sector in 2023, the second highest on record.

Emily Williams, director in Savills residential research team, says: “The UK housing market has performed more strongly than many had anticipated this year, with an anticipated rate cut and improving economic outlook creating more capacity for house price growth.”

* Savills survey of Financing Property 2024 guests