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Category: commercial mortgages
The commercial property sector took a great deal of punishment during Covid and has struggled since, but, there are noticeable signs that the market may be on course for recovery.
Home working, poor economic growth and, for retail, the shift to online shopping have contributed to a range of challenges. Some landlords in the commercial sector have struggled, while others have thrived against all odds.
Signs of recovery
However, The Royal Institution of Chartered Surveyors (RICS) latest commercial property monitor brings good news and signals of growth in the sector.
In Q1 2024, tenant demand increased by 4%. The industrial sector has been in particularly high demand with an increase of 14%. RICS reports that this is “the most upbeat reading since Q3 2022”, but acknowledges it is behind the 2021 trend.
Office space, which was hit particularly hard during the pandemic, has seen an increase of 6% in tenant demand. Looking at the detail of where this growth has emerged, central London is the source. The city saw a jump from 3% in Q4 2023 to 40% in Q4 2024. The rest of the UK is far more subdued at present, with either flat or slightly declining demand.
90% of respondents reported seeing repurposing of office space to varying degrees (up a little from 86% in 2021). 52% reported tenants looking to downsize office space.
Retail is still seeing low levels of activity, but has picked up a little since the last RICS report.
Rental growth
Prime and secondary industrial sectors have picked up in Q1 2024 compared to Q4 2023 (prime property would be classed as newer buildings that are high quality, with a top specifications that are well located and have stable tenancies).
Prime office rental projections have also taken a positive turn. However, secondary offices are expected to fall in the year ahead.
Prime retail rents are holding steady, but secondary retail rents expect a small drop.
Within the investment side of the market demand is levelling out having been negative in Q4 2023. But, there is variation and the industrial sector has notably improved. Office and retail is still struggling, but have improved upon the levels of activity in Q4.
Capital values
As is reflected in the other performance outcomes for the commercial property sector, the capital value of prime industrial property is projected to do well in the year ahead, with a net balance of +54%.
Following that, prime offices are also expected to do well, at +25%, and secondary industrial property comes next with a more modest +14% net balance.
Secondary office and retail spaces are not expected to fare so well, with capital values expected to slip over the coming year.
The good news is that the following property types are strongly projected to achieve positive capital values over the next year: student housing, life sciences, aged care facilities, data centres. All are expected to exceed net balances of +46%.
Financial solutions for investment opportunities
Whether you are investing or remortgaging, reimagining the use of a commercial building, taking on a ground-up build project, the advising team at Commercial Trust can help. Find out more about commercial mortgages, development finance, or investing in student accommodation with an HMO mortgage; or call on the freephone number above to get straight through to an advisor.
