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UK commercial property: top trends investors should know about

Yahoo Finance Staff
The shadows of a sign for Offices to Let is seen on a white wall in a corporate foyer in the City of London. Sunshine pours through the window of this generic company foyer window, allowing the shadow of lettering to be projected on to tht rear wall - advertising that this building has office space to let. Retro seats have been carefully postioned and there is a theme of spots and circles within the picture to emphasize design and coincidence. The amount of office space available to rent in cent (Photo by In Pictures Ltd./Corbis via Getty Images)
Office spaces are in short supply in London. Photo: In Pictures Ltd/Corbis via Getty

The commercial property market can be difficult to navigate as an investor.

There are lots of different dynamics at play across a variety of market sectors, from retail space to warehouses to office space and more.

Here are some of the top trends in the commercial property market that investors should know about.

Central London's in short supply of office space

Demand for office space in central London has not been as affected by Brexit as expected.

According to Knight Frank, 4.8 million sq ft was let in the London office market in 2018, the highest level since 2014 and 15% above the long-term average.

Though the market is still attracting investment —£16bn in 2018, more than any other global city—supply is not keeping up with demand.

“The supply crunch is amongst the biggest challenges faced by the market,” said Knight Frank's central London researcher Faisal Durrani in the property firm’s Q1 2019 report on the city’s offices.

“We are tracking 28 active requirements over 100,000 sq ft, but there are just 18 schemes that can service these, highlighting the depth of the supply dearth.”

Changing high streets

The changing face of Britain’s high streets, as consumers shift to online shopping and destination retail centres such as malls, is an ongoing trend.

High streets are having to work out how to fill the increasing number of vacant retail spaces.

One vision is that high streets will become leisure and service centres, with bars, restaurants, hairdressers, dentists, doctors, and so on, instead of retail spaces.

In any case, retail landlords are having to get creative.

“Not all retail is prime and a major theme for 2019 and beyond will be what you do with a vacant shop,” said Mat Oakley, director of commercial research at Savills, at the start of the year.

“We expect retail landlords to look harder at mixing uses and bringing more services into their schemes. Residential, hotels and even warehouses will be popping up in retail schemes across the country.”

The growing importance of logistics

With more of us shopping online, retailers increasingly need large amounts of warehouse space across the country for their distribution centres to deliver what we’re buying.

“The ecommerce revolution will continue to drive sustained demand for industrial and logistics space in 2019, with demand for bigger 'big boxes' increasing fastest,” said Miles Gibson, head of UK research at CBRE, in his 2019 outlook for the commercial property sector.

“'No-deal' Brexit concerns have not yet been a major force in driving demand, and speculative development is starting to address supply-side concerns.

“Investment demand remains very strong, but investors will need to keep an eye on innovations in logistics technology.”

More people will work in offices in the future

A long-term trend is a rising number of people working in offices, which in turn increases demand for office space across the country.

Urban centres across the regions are typically undersupplied when it comes to decent office space. That problem is only going to get worse.

“Despite the notion of automation/AI replacing human activity for specific tasks, there still remains a need for additional office space in the future,” noted Steven Lang, director of commercial research at Savills, in March.

“In a post-Brexit world, the UK will increasingly play to its strengths and the rising percentage share of employees within the ‘professional, scientific and tech’ sector is key. Office space for these sub-sectors should be an investor’s focus.”