The commercial property market looks set for a positive 2022.
The sector is showing signs of growth and investment as it begins to bounce back from the negative effects of the global pandemic.
Increased investment both domestically and globally is helping, while a return to office work and an uptick in employment and hiring opportunities are instilling more confidence in market investors looking for a greater return.
Overall, investment volumes into the commercial sector reached £57bn in 2021, up by 21% on 2020 and slightly above the five-year average, according to figures from Savills UK’s Market in Minutes.
Competition is returning to the market
A further 10% increase is expected this year as the UK’s appeal as an investment destination continues to attract a higher demand from overseas investors than it did before the pandemic. The resilience of global gateway cities such as London is proving more attractive to foreign investors looking to enter the commercial property sector.
Recently, a growing number of buy-to-let (BTL) landlords have moved into the commercial space, seeking to diversify portfolios and increase profits at a time when stock levels in the residential housing market are at an all-time low. This growth has been driven largely by the offer of greater rental yields and the longer tenancies associated with commercial properties.
Partnering with a specialist in this area and leveraging their expertise can prove a sensible approach
The fact that annual rent rises are often linked to inflation, therefore providing some level of income security for investors, is also attractive, particularly now that many employers are starting to move staff back into the office either full- or part-time after the lockdowns of the Covid pandemic.
Repurposing the workspace
The return of many businesses and employees to an office environment is also driving the increase in investment enquiries both at home and overseas. According to the Royal Institution of Chartered Surveyors’ Global Commercial Property Monitor – Q4 2021, the repurposing of office space was reported in 87% of cases, with 15% of respondents saying it was happening in significant volumes.
This change to the traditional set-up is being driven by demands for more flexible conditions and is changing how the workplace is used, with occupiers actively seeking ways to make the office safer and more attractive to employees. This includes adapting the spaces to cater for hybrid working, increasing the desk-space allocation and seeking local workspaces.
A growing number of BTL landlords have moved into the commercial space, at a time when stock levels in the residential housing market are at an all-time low
In addition, the new permitted development rules enabling commercial premises to be converted into residential homes — which came into force on 31 March 2021 — have made commercial property more attractive for investors. They open up the potential for commercial buildings to be used as residential space following the aftermath of the pandemic.
Similarly, many investors, particularly residential BTL landlords, may find that some commercial properties are unsuitable for residential purposes but could still prove to be good commercial investments, in which case some may have switched to the commercial market unwittingly.
Another factor driving up interest in the commercial space is the attractive rates being offered to encourage owner-occupiers to use the commercial premises they own, instead of leasing to tenants.
The return of many businesses and employees to an office environment is also driving the increase in investment enquiries both at home and overseas
This is particularly pertinent post pandemic as the small and new businesses that have emerged seek commercial space. It is also driving up competition between lenders, with service standards being stretched due to increased funding demands, highlighting the growth in the sector.
Overall, continued demand and a healthy supply of commercial property are supporting market dynamics and growth opportunities in 2022, with investors starting to look for more opportunities after a stagnant two years.
Lenders are responding to this demand and competition is returning to the market, which is good news for both investors and brokers.
Many investors may find that some commercial properties are unsuitable for residential purposes but could still prove to be good commercial investments
The lending landscape is evolving all the time with new rates, products and criteria. It’s important for brokers to keep up with market movements in order to have confidence that they are securing the best solutions for their clients.
For brokers who do not work on commercial cases every day, and for those whose main focus is the residential and BTL markets, partnering with a specialist in this area and leveraging their expertise can prove a sensible approach to making the most of the new opportunities.
Jason Berry is group sales and marketing director at Crystal Specialist Finance
This article featured in the May edition of MS.
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