Green shoots of recovery expected by the end of 2023 for real estate, says CBRE

Steven Newlands (Managing Director of CBRE Scotland)

REAL estate investment markets are expected to emerge from a period of uncertainty and pricing will likely stabilise towards the end of 2023, with a continued flight to quality and ESG being key drivers of activity across all asset classes, according to CBRE’s UK Real Estate Market Outlook 2023.

In the near term, a moderate recession is expected, with high inflation and rising interest rates putting downward pressure on economic activity. Income returns, rather than capital growth, will likely drive commercial real estate returns in 2023 – heightening the importance of asset management and the financial performance of occupiers.

On the investment side, Steven Newlands, Head of Capital Markets for CBRE Scotland, anticipates further inbound investment into the UK market. “While we forecast investment volumes will drop somewhat, the UK real estate market benefits from a diverse investor base. The realignment of prices towards the end of 2022 means that 2023 may provide opportunities for private capital to enter the UK market.

“Certain sectors will remain attractive to investors, while others have robust rental growth prospects. We know equity is waiting on the sideline to invest, and as the markets recover investors will look to deploy and more than likely will focus on best-in-class assets across the sectors. Green shoots of recovery will materialise.”

Overview of sectors:


The implementation of more mandatory disclosure requirements and high energy prices will accelerate sustainability action within the real estate market, from both investors and occupiers. CBRE expects buildings with greater energy efficiency or using onsite renewables to be insulated from the worst of the energy price shock.

Landlords and investors will be better informed as to the cost and benefits of sustainability and green features, as better quality and more substantiated data is cemented into the valuations process. More ‘net zero’ buildings are anticipated to enter the market in 2023 and the increased demand from occupiers will prompt further scrutiny as to what qualifies as a ‘net zero building’.


In the office market, leasing activity will be constrained due to a fall in office-based employment in 2023. CBRE expects continued strong demand for the most sustainable and inviting office space and as a result, the appetite for properties that are newly developed or refurbished will remain high and we anticipate rental growth in the short term for the best buildings. 

Yields will expand further during the first half of 2023 in most UK office markets. Pricing will stabilise during 2023 and this should stimulate more investment activity. CBRE forecasts office investment volumes to be down 20% year-on-year in 2023, with the majority of transactions likely to take place in the second half of the year.

David Smith, Managing Director of CBRE in Scotland, said: “In Edinburgh, the short to medium term supply pipeline is a real concern – for Scotland’s capital to have this little future stock is an issue if we are seeking to attract new corporate occupiers into the city. There needs to be an enhanced strategic vision to offer clarity on the areas of growth for Edinburgh’s commercial activity over the next 20 years.

“The city continues to be an indigenous market with it being rare for a new entrant to take meaningful space. By comparison, of the take-up in Manchester 45% is new inward investment. If Edinburgh wants to attract new, dynamic and fast-growing companies then this is a whole strategy piece that needs addressed in the very near term.”

“In Glasgow 2022 has been slow in terms of activity. You could say this is linked to a lack of quality product (Grade A vacancy is 0.4%) however, it is likely linked to getting people back into offices. Most commuters travelling into the city arrive on public transport and it’s exactly these people who have been choosing to work from home. Occupiers have therefore mainly chosen to re-gear, downsize or move into serviced office space.

“We only have one speculative new build scheme onsite – The Grid (295,000 sq ft) and two high quality refurbished buildings – Aurora (178,000 sq ft) and Lucent (90,000 sq ft). Prime rents are forecast to grow, with £36 – £40 per square foot looking more likely over the next two years.”

“The Aberdeen market is counter cyclical to the rest of the UK market. Having experienced a challenging period since the last energy sector downturn, the occupational and employment market in the North East is the strongest it has been for eight years. We are seeing the new breed of private equity-backed energy operators growing their headcount in the city, for example Harbour Energy, Ithaca and Neo Energy. The city is also now starting to see demand from occupiers focused in the energy transition space however there is an ever-dwindling supply of best quality office and industrial stock to capture this demand.”

Industrial and Logistics

CBRE anticipates occupational activity levels will remain above long-term averages in the logistics sector. Third-party logistics providers are expected to continue leading the take-up due to the ongoing search for flexibility in supply chains.

The market faces challenges including critically low levels of supply, increasing construction costs, rising exit costs and higher exit yields. However, CBRE asserts that logistics assets will remain attractive to investors with continued rental growth expected.

David Smith said: “In Scotland the industrial market has remained resilient and 2022 has been largely positive from a deal and rental growth perspective. Looking ahead the key issue for the Central Belt remains a distinct lack of brand new or modern warehouse space. This has been an issue for several years due to a strong period of occupational demand. We anticipate that the shortage of stock across all size bands will remain a challenge for occupiers and as a result we are likely to continue to witness rental growth in 2023 despite economic uncertainty.”


CBRE expects retail to be less affected by repricing than other sectors, yet it will not be immune to the wider economic headwinds in 2023. The physical store will play a key role, with modest expansion anticipated for well-positioned occupiers. Furthermore, the volume of business casualties is expected to be less severe than during the pandemic.

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