With such a vast spectrum of commercial property available across all market sectors, many investors find the seas of commercial property investment just that little too difficult to navigate.
The resulting frustration often leads to potentially very lucrative deals never being struck. An investor with confidence in one sector of the market is often fully prepared to admit that he or she is out of their depth when venturing into new and unchartered sectors.
The result is that a commercial property investors portfolio can appear stale, often presenting them in what looks like a weakened position when looking to liquidate their capital.
Fortunately, there are trends happening right now in the commercial property sector of which more and more investors are becoming aware. In this article, we’ll take a look at what we consider to be the most significant and in some cases, surprising trends.
Central London – Where Supply Doesn’t Meet Demand
There is a consensus throughout the UK that market confidence is at an all-time low thanks to Brexit. However, when it comes to commercial property, this really has not shown itself to be the case. In a report published by leading Estate Agents, Knight Frank, some 4.8 square feet of commercial property was let in 2018, and this is significant on a number of levels.
First, this is the highest level witnessed since the financial year 2014/5. Moreover, this is some 15% above the long term average. So, what’s the trend here?
It’s quite simply that supply is not keeping up with demand. London commercial property saw some £16bn in 2018, which is higher than any other global city, and this is encouraging.
Knight Frank’s 2018 report states that Central London occupational supply actually peaked in 2017, and has been gradually falling ever since. The shift is towards an increase in the demand for pre-let property, where agreements exist between tenant and owner before construction is completed, and in some cases, even started.
The High Street Evolution
Retail landlords need to continue to be creative. The traditional model of the high street is failing in the face of increasing online commerce. Lower prices, greater choice and, for many customers, free and speedy delivery, has made it increasingly difficult for the high street retailer to compete.
Certain outlets, whilst suffering a mild downturn, are still able to work to profitable margins. Clothes stores, for example, are still able to convert the window shopper into an impulse buyer, not to mention the convenience of being able to try on the garment there and then to see if it fits and of course suits the wearer.
The problems highlighted above with regard to commercial property in Central London don’t really extend to the retail arena. Towns and cities across the UK are home to growing numbers of empty retail units.
With an increasing number of shopping centres housing the most recognised high street chains, these empty units are likely to undergo a change of use – moving into the leisure, hospitality and service industries.
Many high streets have seen a sharp increase in the number of restaurants, bars and hair and nail salons opening up. Whereas more service businesses are migrating to much more visible offices, hence we are seeing more dentists, doctors and solicitors, for example, taking residence in well-positioned retail units in the high street.
One additional trend in the high street is in the increase of what could best be described as ‘concept stores’, where a mix of eclectic goods and services are brought together under one roof. For example, one may encounter a gentlemen’s clothing store where shoppers can stop for a coffee and even get a shave and haircut from a traditional barber.
And the furthest departure from retail but still remaining on the high street is in the development of residential property, either directly above or sometimes including the retail unit on the ground level.
Such homes are perfect for people who rely on public transport. Their proximity to all mainstream amenities means that they are less likely to need their own car, and as a result, developers do not concern themselves with the allocation of parking spaces for their residents.
Serving the Whole Country
The demise of the high street as a shopping centre gives rise to one major gap in the market – warehousing.
An astounding 69% of internet users purchased something online in 2018, and that’s just in the UK. Beyond that, 36% of users throughout the EU were ordering products from the UK. Not accounting for people buying second-hand items on well-known auction sites, this means that an incredibly vast amount of stock requires storage.
Not only that, but this storage must be well served by all major transport routes and must be able to house those delivery vehicles when not in use.
Investors would be wise to keep a close eye on the logistics market – both in terms of the property and the innovations continually taking place in logistics technology.
The Role of the Workplace
Despite an increase in the number of people working from home, there are still a lot of people who would prefer to work in an office. Homeworking can be isolating, whereas an office can create a motivational environment.
This is why there has been an increase in the number of people using shared offices, incubators or business hubs.
For a low monthly rent, small business owners can have access to a desk and a WiFi connection, and for many owners, that can prove to be more than enough. The eclectic mix of businesses all working under one roof has proven to encourage much more cooperation than it does competition.
Urban centres across the country don’t have enough office space to offer these new startup operations, and it’s an issue that commercial property investors should consider. An airy, open-plan office in the centre of a busy town with access to rail links and, in some cases, parking, could prove to be a very attractive proposition.
Tenants are looking for short contracts, which are typically hard to come by, hence the shared office model, offering basic facilities, short contracts and some simple creature comforts, could prove to be incredibly lucrative for the smart commercial property investor.
