Following our last report in July 2021, while the ripple effects of Covid-19 are still being felt globally, leading UK market commentators remain cautiously optimistic that 2022 will see a gradual return to normal conditions. This is our market observation on the Commercial Property market.
Logistics & Warehouses
Demand for logistics and retail warehousing is likely to remain high and increase. This is partially caused by the imbalance in supply and demand which will continue to push up rental growth.
On the other hand, site availability, protracted planning and costs of labour are all restricting the supply chain and may hinder the rate of growth. Further, investors should be mindful that all future assets will need to be ESG compliant and, therefore, procuring this specific type of stock will become increasingly competitive.
Office
Historically, offices have accounted for almost 40% of all commercial property investment. However, questions are being raised as to whether this asset class will retain its prime standing in the long-term given the lack of clarity surrounding Brexit negotiations and the slow rate of workers returning to the office This worry is compounded by the fact that almost £2.5bn worth of office stock is not fit for purpose and landlords, seeking to maximise yields and capital values, will need to invest significant capital to bring in the best tenants and avoid vacancy periods.
The design and future uses of office space remains in flux as UK companies deliberate how it can be repurposed to suit an ever-changing work environment. Some companies have insisted that all workers must return to the office, while others have opted for a more flexible approach, allowing staff to choose a hybrid approach.
Retail Leisure & Hospitality
After the devastating effects of COVID-19, the resurgence in retail and hospitality is still under way. The recovery may be bolstered by record consumer savings and a gradual return to work. This, coupled with increasing rates of pedestrianisation, is likely to increase footfall which will - in turn – significantly affect retailers and those in hospitality. As rental and capital values are recalibrated, investors will continue to re-engage with the market. However, risks in the form of further COVID outbreaks and supply chain issues, may hinder the sector’s growth.
Conclusion
The worst of the pandemic is now behind us and the UK is in recovery mode. Real estate businesses across the country have had to become more innovative, flexible and collaborative. There has been a surge in proptech and other technologies as some companies seek to retain the hybrid model of working and keep communication seamless.
Conversely, factors such as the recent rise in inflation and interest rates as well as other issues - such as the cost of labour - may hamper the country’s future economic prospects. Only time will tell.
