Year in Review - a look back at 2024 | Commercial Mortgages news | YBS
Angela Norman – interim managing director for YBS Commercial Mortgages - talks to Modern Lender about the sector’s highlights and challenges of 2024, and looks to 2025 to consider what the future might bring.
Has 2024 been as predicted for the commercial market?
At the start of the year, investors were hoping that prices and interest rates would stabilise in 2024, and this is broadly what has come to pass, although it has not been plain sailing for the sector. Half one was fairly flat - a hangover from prevailing market conditions at the end of 2023. Uncertainty characterised market conditions with investors and lenders closely watching trends in inflation and interest rates. Political uncertainty also featured in landlord considerations of whether to hold their positions or invest. As 2024 has unfolded we have seen an increase in confidence - falling inflation rates and a predicted downward trend in base rate has gone some way to restoring this.
This brings optimism for 2025, as I’d expect this activity to improve commercial investor confidence across a range of sectors. Warehousing, industrial, retail parks and good quality office accommodation are seeing positive trends, as are semi commercial properties in secondary and tertiary locations. But we still see pressures on town centre retail and leisure sectors.
As for buy-to-let, the market has remained consistent this year, and the demand for housing remains strong. Yields are still positive, particularly as interest rates fall, and many investors have been able to increase rents to match mortgage payment rises due to demand being so high. Data from the Office for National Statistics (ONS) shows that private rental prices paid by tenants in the UK rose by 8.7% in the 12 months to October 2024 - up from 8.4% in the 12 months to September 2024.1
What factors have influenced the commercial market this year?
There’s no doubt that it’s been a year of volatility, both politically and economically. On the political side, the length of time between the arrival of the new Government and the announcement of its first Budget, caused uncertainty in the market, as investors hung on for clarity. This has also been challenging for brokers trying to persuade customers to commit to deals beyond the enquiry stage.
The year has also been characterised by a misalignment between the reality of the market and what investors expected to happen, including expectations that the Base Rate would come down more times than it has. This has prevented transactions from picking up as investors sat on their hands waiting for better rates.
How has 2024 compared to previous years?
I’d best describe 2024 as being ‘stuck on amber’ and ‘waiting for green’, largely due to the mixture of factors mentioned above. That said, we’re still seeing investors branching out and diversifying their portfolios. For example, buy-to-let investors moving into purchasing Houses of Multiple Occupancy (HMOs) to chase better returns. This is because these professionals are generally savvy and know how best to react to the market, adapting their businesses accordingly, and we’ve certainly seen this in 2024.
What have your biggest successes been as a lender in 2024?
This year we’ve been responding to the market taking a breath, by listening to and acting on broker feedback. We’ve used this to help us gear up for an expected uptick in activity by implementing process improvements to make the application journey quicker and smoother, creating more certainty for brokers and their clients. We’ve also streamlined our customer due diligence process, and made changes to our teams to ensure they can support brokers in the best - and quickest – way, at every touch point in their journey with us.
And we’ve certainly hit some fantastic milestones – hitting £2 billion on our balance sheet and branching out into new markets with the launch of our new SME product. This allowed us to utilise the existing knowledge and skills within our lending teams to support this growing need within the UK economy, providing purposeful lending solutions to help local businesses and their communities.
What do you think 2025 will bring for the commercial market?
I’d expect commercial real estate volumes to start to pick up, property prices to increase, and there to be a gradual, slow and steady shift towards greater market positivity. Forecasts by the big valuation houses suggest that we will see growth next year2 – for example, the office sector is already starting to pick up as many employees return more often to their physical place of work. The retail sector has been badly hit since the Covid-19 pandemic, but is also starting to pick up – especially as larger retail operators look for premium out-of-town spaces.
As for buy-to-let, there has been a trend over the last few years towards two things – an increasing swing towards professional investors; and diversification of assets by those investors to spread risk and ensure the highest returns. I’d expect these things to continue into 2025.
What about YBS Commercial – what’s your focus for 2025?
As a strong, stable lending partner, we’re committed to ensuring that our product mix and service are the best they can possibly be. Supported by the process improvements we’ve made in 2024, our focus will be on refining our product ranges. We’re also looking to launch a new broker portal which will offer a streamlined application process, and a smoother journey for brokers.
2025 will also be a time for business growth – building on our stable foundations and working with brokers to meet customer needs as smoothly and efficiently as possible - but always recognising the importance of the human touch in everything we do.
There’s a lot to do, but I’m really looking forward to it, as we face into an exciting new chapter of our journey. Roll on 2025!
ENDS – CMPR28-24
2 The IPF Consensus Survey shows expected capital growth across all sectors in CRE of 3.5%, and continued positive rental growth.