In a recent talk to The CPN Investment Panel, the Head of UK Markets at a major UK investment house shared expert insights into the current state and future prospects of the UK commercial property market. Here’s a summary of the key themes and insights discussed:
Market Stability and Trends
The talk began by addressing the overarching stability across various sectors of the UK commercial property market. Despite a subdued few years influenced by the COVID-19 pandemic, where transaction volumes dropped significantly, the market is showing signs of stabilisation. It was noted that all sectors seem to have stabilised, with none currently out of favour, although offices in the Southeast still face significant challenges.
Sector-specific Insights
Offices
The office sector, especially in London’s West End and City, shows strong stability with a robust occupier market driving prime yields. However, there is a notable lack of stock, which has kept trading volumes low and yields relatively stable. The sentiment of ‘survive till ’25’ suggests that market players are cautiously optimistic about a recovery and growth post-2025.
Industrial
The industrial sector has demonstrated resilience, with post-COVID recovery showing stable yields and increasing occupier rents. Notably, companies like Amazon returning to the market signify a strengthening demand, particularly in multi-let industrial estates.
Retail
Retail warehousing is emerging as a sector of interest, driven by high demand from both investors and occupiers. Prime retail warehouses, particularly Solus units, are seeing growth in transactions and premium pricing due to the scarcity of opportunities.
Future Strategy and Market Outlook
The investment house is strategically reducing its exposure to offices, shifting focus towards high-quality, best-located offices that align with modern standards, including environmental, social, and governance (ESG) criteria. Meanwhile, industrials remain a favourable sector, and retail has stabilised at lower holding ratios.
Expansion into Alternative Sectors
Looking forward, there is a strategic aim to increase investments in alternative sectors like Private Rented Sector (PRS), Purpose-Built Student Accommodation (PBSA), and hotels, targeting an increase in these areas. Data centres and self-storage present significant opportunities, though they come with challenges, including high barriers to entry and concerns around ESG implications.
In Conclusion
The conversation reflects a market poised for recovery, with strategic adjustments aligning with broader economic and social shifts. The UK commercial property market foresees continued stabilisation and opportunities for growth, especially in sectors where new, high-quality stock is limited.