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The UK Commercial Property Investment Market

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The Retail Sector

Probably the hardest-hit sector of all commercial property, many high streets have lost the large department stores, which were seen as anchors and attracted shoppers to other smaller outlets. In addition to big retail outlets pulling out, how we live and work has seen a rapid change. Covid forced most workers to work remotely, together with the advances in technology forced many retail outlets to close; following the lifting of covid restrictions, many have continued working remotely. The move to online shopping has profoundly affected traditional High St. shopping. As a result, capital values have suffered, and the retail sector in many traditional town centres is struggling to survive.

Many local councils are producing plans to redesign, adapt, and diversify the town centres to include other attractions such as bars, restaurants, leisure activities, and living places, hoping to energise the areas to prosper again. The London Mayor, Sadiq Khan, has launched the ‘High Streets for All Challenge’. The challenge calls for high street partnerships to develop innovative strategies and asset-based proposals prepared to boost economic activity.

 

The Office Sector

The covid pandemic and the government instruction to work from home have produced an enormous change in the office sector. As with retail, overall, the office sector has seen capital values falling, as have rental incomes. There are high vacancies and low demand, this situation will continue over time as businesses vacate their premises, increasing the stock available and putting more downward pressure on rental values. There are exceptions to this; developments that offer good amenities, public bars, cafes, and restaurants, and access to a skilled workforce are better placed to find occupiers. Another exception is the flexible working space, office spaces that are furnished ready-to-use and come fully equipped with access to business-grade IT infrastructure, reception staff, and meeting rooms. These flexible office spaces are proving to be particularly suitable for businesses that are offering their workforce hybrid working arrangements.

 

Warehousing

The spectacular rise in online shopping has seen the demand for new modern warehouse/logistic space grow rapidly. One recent report describes the growth in pressure for warehousing space from E-commerce has led to estimates of demand increasing to 92 million square feet of warehousing space over the next two years. Paul Tostevin, director of Savills World Research team, comments: “Changing consumer behavior, the eCommerce boom and shifting supply chains, resulting in a lack of space and rental growth in many highly constrained markets, have driven the global warehousing market to new heights.”

CBRE’s latest European Logistics Occupier survey said, “A large percentage of businesses (75%) are expected to grow their logistics footprint in the next three years. City expansion is a high priority for occupiers seeing rising expectations of delivery service level” the survey also pointed to “a third of respondents see expansion into urban locations as a high priority”.

Data Centres
There is a huge demand for new and up-to-date data centres, however, it is a very bespoke market and barriers to the market are high. The requirement for detailed knowledge of the technical requirements and very high entry costs tend to deter most investors.

In conclusion, higher borrowing costs are making commercial real estate investments less attractive. If the prediction is correct, the consequences could be expensive. While there are many retail and office sales available, the changes to the way we live, E-commerce and home working is making investments in these sectors riskier. There are opportunities in these sectors, however, a great deal of investigation is required before buying decisions are made. Investing in logistics/warehousing looks set to be the area with the best return but again investigation into the site location is paramount. Occupiers want new up-to-date sites that offer good access to transport links and are close to the population centres. Older sites that don’t have good transport links should probably be avoided. The key to any real estate investment is the location and the quality of the property.`);

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The UK Commercial Property Investment Market

 

Industrial land prices have grown significantly over the past few years and have been seen as a safe and profitable investment. However, following Chancellor Kwasi Kwarteng’s financial statement last month, analysts have predicted that UK commercial real estate values could fall by 20%. With land prices estimated to decrease,are there still areas of investment opportunity in UK commercial property? As with many investments, the answer is not straightforward; this article will investigate differences between sectors, retail, office, logistics, and data centres.

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