Expert commercial property predictions remain extremely mixed. It appears that the long-term effects of the credit crunch have left even the commercial property specialists confused.
Looking at current and past performance figures we can see that there is physical evidence that commercial property rents are continuing to decline across Europe, the Middle East and Africa (CB Richard Ellis’s latest research) and that the fallout from the recession is persistently affecting SMEs and large corporations alike. Even Tesco our biggest supermarket chain are reducing their spending on new properties in order to decrease their costs during the recession. However, this doesn’t quite tell the full story and in a similar pattern to Sainsbury’s and the other large grocers Tesco are still planning to expand their UK selling space by six to seven percent each year by developing their existing stores. Comparable to residential home owners who rather than looking to purchase larger properties are instead looking to make the most of the space they already have.
The declining rental values are visibly affecting UK commercial property values and the Royal Institute of Chartered Surveyors (RICS) believe that our commercial property market is only now halfway towards recovery and won’t recuperate for at least another two years. These predictions are in stark contrast to other industry experts who believe that 2009 will see the end to the current declines.
Confidence in commercial property investment does appear to be improving however with investors feeling far less pessimistic than at the end of 2008. This combined with the current weakness of the pound and the fall in commercial property values over the last twelve months mean that investor interest in London commercial property has increased significantly over the last month alone. Foreign investors are leading the way with many deciding now is the prime time to invest into UK commercial property.
Despite the increased interest investors are being warned that rents are still likely to continue to fall throughout 2009 as vacancy rates increase and the recession takes its toll. Tenants are continuing to enjoy the declining rents which simply didn’t occur at the same pace in previous commercial property recessions due to the fact that leases are now much shorter and more flexible with increased break clauses.
Confidence is finally beginning to return to the UK commercial property market with signs indicating that the UK economy is now past the worst of the recession and moving nearer to genuine growth.The residential housing market led the commercial properties sector into the recession therefore, news that residential activity is increasing is welcome relief to the UK property industry as a whole. This combined with falls in capital values and the fact that tenant demand is starting to slowly increase means the future for UK commercial property suddenly looks far less bleak than it did six months ago.This shift is most apparent in the central London commercial property market where sales have been steadily increasing over recent months. Prime property prices in London have increased for the second month in a row and evidence shows that it is these quality properties that have really retained their value despite the recent economic conditions. This is backed up by the fact that the strongest performing sales have been for prime real estate in locations such as Mayfair and Marylebone.Despite the recent changes and widespread acknowledgement that UK commercial property is a compelling investment opportunity the recession is not yet behind us. The outlook is now far more promising for commercial property owners however they still need to find effective means to get through the next twelve months. Landlords are being extremely resourceful. As well as decreasing rents and increasing tenant inducements they are also looking to new ways of getting the most out of their commercial property. Landlords that are adaptable and reactive to new market trends are the most likely to remain successful. Unemployment has now officially overshot the two million mark therefore there is an increasing amount of potential tenants that are claiming housing benefits. These tenants are generally semi-skilled workers who have good credit scores and references but are out of work as a result of the recession. Adaptable landlords are asking local councils to recommend housing benefit tenants for their properties. Other areas where commercial property landlords are diversifying include student accommodation and some are even looking into leasing out their properties unused parking spaces where they can earn on average an extra £3,200 a year.
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