Commercial Outlook Q1 2023

NAEA Propertymark Commercial agents reported a more positive outlook for many sectors compared to last quarter. Better than anticipated performance of the UK economy and resettling after the Truss/Kwarteng budget have resulted in improved expectations.

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Land and yards sector best placed to weather inflation pressures

The land and yards sector is still seen as best placed to weather the pressures of inflation and interest rate rises with capital values, rental levels and investment yields all expected to rise over the next year by most agents due to a continued lack of stock.

The worst overall outlook for the next year remains in the pubs and restaurants sector. With cost-of-living concerns, energy prices and interest rate rises affecting tenants’ bottom lines, combined with liquidations leading to rising supply, rental levels are expected to decline along with capital values and investment yields. Though, there has been some improvement in sentiment with regard to this sector, again resulting from better than anticipated broader economic outcomes.

The commercial property market has clearly seen the impact of the recent economic downturn. Higher interest rates have hit deals agreed and broader investment in the sector. Our members reported having to increase tenant incentives to complete on deals and fill vacant property.

Two sectors stand out for me in this quarter’s Outlook – take-aways and business transfers. Our members agree that the outlook has improved for take-aways, as consumers switch from dining in to taking out. And business transfers are likely to struggle over the next twelve months as supply increases and demand falls away through the anticipated recession.

Agents are seeing an increase in repurposing from commercial to residential property as the housing sector struggles with capacity issues. In this regard, I am pleased that Propertymark has recently responded to the All-Party Parliamentary Groups for Ending Homelessness and APPG for Housing Market and Housing Delivery joint inquiry into housing solutions for homeless households – rethinking residential to commercial conversions to advise on the phenomenon and how it could help to provide more affordable homes especially where commercial property is left derelict with no purpose at all.

Finally, it is good to see our investigation into planning issues experienced by members has reached the heart of the issue. 58 per cent of respondents reported a lack of staff in local planning offices and the delays caused by this as the crux of the problem. Delays limit the prosperity of our local communities and leave our high streets empty. The UK Government must do more to push local authorities to expand recruitment in planning offices. The UK Government also needs to spearhead the introduction of a class use register for all commercial premises in the UK so that delays in use queries and change of use applications are greatly reduced.

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Anthony Meadowcroft President | NAEA Commerical

Keeping an eye on trends

Last quarter our agents highlighted several potential trends to keep an eye on over the next year. These were repurposing of pubs and offices to residential, higher lending costs limiting growth – hitting both price and deal volumes, an increase in cash purchases, and more shops closing down.

48 per cent of responding agents reported noticing a continuing trend of large office spaces being repurposed to residential. With reduced demand for large and/or low-grade office space since the pandemic, repurposing has been seen as both a channel through which to increase returns and a potential solution to the UK’s housing crisis.

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