What is the future of commercial property in the UK?
The Centre for Retail Research has stated that over 176,000 retail jobs were lost in 2020, while in October last year, data showed that retail premises vacancy rates rose to 13.2% in Q3 2020, up from 12.4% in Q2.
Meanwhile, the picture looks similar for office spaces, with an Institute of Directors poll revealing that 74% of office-based company directors plan to continue with remote-working policies in some form. The poll’s results also show that over half of these businesses plan to reduce the office space that they use in the long term.
For commercial property investors, these statistics can appear bleak. But is it still worth investing in UK commercial property?
Two ways to invest in commercial property
There are two key ways in which investors invest in commercial property. With direct investment, investors purchase the buildings themselves. With indirect investment, they instead invest in property-based shares, stocks and bonds.
Commercial property in the UK accounts for 13% of the total value of UK buildings – and incorporates a range of different building types: offices, retail spaces, leisure establishments, industrial units, factories and warehouses – and even premises like car parks. Clearly some of these sectors – such as offices and smaller, “non-essential” retail spaces have been harder-hit by the pandemic, while others – like supermarkets – have performed strongly. So is the entire market completely doomed?
Which commercial property funds are performing best?
Open-ended property funds were closed for much of 2020, reducing investor confidence in these fund types. However, there have been some success stories.
CBRE predicts that £48 billion will be invested in UK commercial property this year, up from £37 billion in 2020. Avison Young data shows that office investment volumes across the UK’s nine largest cities in Q4 made it the best-performing quarter of 2020, while money is also being invested in entertainment – such as the £1.3bn revamp of London’s Olympia Exhibition Centre.
Meanwhile, certain real estate investment trusts (REITs) performed strongly in 2020. These include the Supermarket Income REIT, the Urban Logistics REIT and the Warehouse REIT – showing that certain commercial property types have seemingly been able to weather the storm.
2020 spelled doom and gloom for a number of sectors. But data from industry experts suggests that all is not lost in the UK commercial property sector – especially in certain sectors that have maintained a strong performance throughout the pandemic.
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