Commercial developers, investors, and landlords willing to adjust portfolios
The commercial property market is showing resilience in adapting to the high interest rate environment, according to a report from specialist lender Together.
In support of the findings of the report, economist Rob Thomas forecasts a 32% increase in total secured commercial lending from an estimated £90 billion in 2023 to £118 billion in 2028, indicating a positive outlook for the commercial sector over the next three to five years.
“In the short term, while inflation is coming back under control, the higher interest rate environment will take some adjustment for commercial property businesses, landlords and developers – including de-risking portfolios and diversifying into new growth sectors,” Thomas, an economist and principal researcher at the Intermediary Mortgage Lenders Association, said.
“However, for those looking for growth in the medium to longer term, there are opportunities across the sector this year onwards. And the insight on the ground is that the sector is in rude health.
“The research we’ve undertaken shows that, while some property professionals are scaling back or exiting the market, the majority are committed to developing their portfolios and many are even taking advantage of the temporary reduction in property prices to expand. When looked at in the round, the scale of the opportunity is significant.”
Together’s report, “Opportunities and Outlook: The Future of Commercial Property,” highlights a trend where commercial developers, investors, and landlords are adjusting portfolios to counter falling yields and revenues.
Survey findings reveal that 23% of respondents view student housing as the most appealing property investment opportunity over the next year, followed by housing developments with 21% and luxury residential properties with 19%.
While 29% of property investors acknowledge the difficulty in securing lending due to falling property values, the majority remain optimistic about capitalising on emerging growth sectors. Retail projects are the top priority for 18% of investors, followed by housing developments at 17% and student accommodation at 16%.
Concerns persist regarding certain commercial market opportunities, with office space (17%), hotels (15%), and industrial or manufacturing sites (13%) triggering the most hesitancy among respondents.
A significant portion, or 44% of respondents, plan to de-risk and shrink their property portfolios in the next 12 months, with nearly half of them intending to do so within the next three to six months.
Meanwhile, specialist lenders are perceived as best equipped to meet the lending needs of commercial landlords, investors, and developers, as 69% of respondents anticipate a rise in the amount they need to borrow to support their investment strategies in the coming year.
Around a quarter of the respondents (23%) believe that the commercial market is improving with more opportunities, while 18% foresee the potential to generate higher returns, and 16% note reduced purchase prices facilitating new deals and opportunities.
“As we look at the UK commercial property landscape, the scope and diversity of the opportunities is impressive,” Chris Baguley (pictured), group channel development director at Together, commented. “Whether its student housing, housing/residential development or repurposing retail and other larger sites, the next few years are going to provide significant growth for the UK commercial property market.
“The optimism of the sector, combined with the economic recovery, mean those investors that are well poised with the right finance support will ultimately be in the best position to capitalise on these opportunities.”
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