Nobody can escape the impact of interest rates, inflation and global uncertainty – not even the office real estate sector.
D2 Real Estate has released its annual Channel Islands Office Market Review, where it delved into the general economic outlook, reflected on its predictions from the previous year and looked at what real-life local transactions indicated for the market.
Express took a look at the report’s key findings…
Did projections come to fruition?
In short, mostly. Despite “further economic turbulence”, projections from D2 Real Estate’s 2024 report were fairly accurate. Let’s take a look…
Projection: “2023 and 2024 to emerge as good times to have acquired stock.”
Reality: The market “bottomed out”, or reached the worst point, in 2023 and 2024. D2 Real Estate said there was evidence that some 2023 acquisitions are achieving 15%+ returns, due to rental growth and yield compression.
Projection: Market interest rate expectations:
- June 2024: 5%
- September 2024: 4.75%
- December 2024: 4.25%
Reality: After 11 months on track, the final projected rate cut didn’t materialise.
Projection: “Anticipate muted GDP growth, a tapering of inflation and a lowering of interest rates in 2024, triggering a potential recovery in commercial property values.’
Reality: There was 1% GDP growth in 2024. Inflation has fallen and values have bottomed out, with yield compression in the Channel Islands.
Projection: Rents in Jersey could achieve £50psf based on factors like tight supply.
Reality: “While £50 psf proved optimistic, supply remained limited, and enquiries were strong. Evidence suggests rents in some second-generation buildings will rise by more than 35% over a 12-month period.”
The Channel Islands were ahead of the curve
The real estate firm said it was widely believed that the UK market “bottomed out” in 2024.
But the Channel Islands market was on the road to recovery sooner than the UK. D2 Real Estate suggested that it “bottomed out” in 2023 and had been recovering ever since.
Comparisons between 2023 and 2024 suggested a yield shift of 50 – 100 basis points.
In Jersey, the sales of 13-15 Castle Street; Charter Place, Seaton Place; and 1 Seaton Place were said to be “comparable in investment profile and location” and showed “clear yield compression” therefore indicating values have risen by around 5% – 10% since mid-2023.
Click the arrows to see the stats from the sales.
What’s happening in the occupational markets in Jersey?
One of D2 Real Estate’s projections was to see the first £50 + psf office transaction in the Channel Islands.
Though that didn’t occur within the predicted time frame, the firm believes it is “on its way”.
“2024’s office take-up levels have remained consistent year-on-year, and occupiers’ relocation activity remains driven by quality upgrades, centred on the Esplanade / IFC / Castle Street location,” it said.
Limited stock drove occupiers to consider larger offices or temporary locations until the “right option” presented itself. This led to increased demand for “flex space”.
Occupiers looking for a new, recently built space, may have to be “patient”, according to the firm, since the last development that offered significant vacant space was completed in 2018.
As a result, there is rental growth in the second generation building rental tone.
“We have identified around 200,000 sq ft of live enquiries from expanding corporates to new entrants seeking premium space, as well as over 80,000 sq ft now in advanced negotiations,” D2 Real Estate said.
“We expect to see several commitments to identified options in 2025, which may ultimately carry us over the £50 psf threshold.”
And Guernsey?
The real estate firm said June’s opening of Plaza House “marked the completion of Guernsey’s office development cycle”.
And the BREEAM “very good” office building “consolidated Admiral Park’s success story” with “quality” occupiers already agreed and vacancy accommodation in “advanced negotiations”.
D2 Real Estate noted a trend in relocation where occupiers choosing to move had “inspired others”, and 2024 levels returned to that of 2022.
It said it expected to see landlords in Guernsey “firming up their rental aspirations”, and a “shift in the prime rental tone in 2025 to above £40 psf”.
Phil Dawes, Managing Director of D2 Real Estate, said his hopes for 2025 were high, despite “unresolved geopolitical storylines”. He credited this to becoming “comfortable being uncomfortable”.
“I believe we are in much better shape than 12 months ago. Reducing interest rates – as ever, contingent on containing inflation – offers a strong platform for a sustained recovery,” he added.
“With increasing investment volumes will come rapidly gathering momentum… There is incontrovertible evidence of rising values here in the Channel Islands, and a strong tailwind of improving rental growth outlook and falling interest rates.”
You can read the full review here.