Commercial Property Represents
Opportunities for Investors

Whilst many are proclaiming that commercial property will ‘never be the same’ as a result of the coronavirus pandemic and subsequent lockdown, there is reason to be optimistic that the sector will present an opportunity for investors.

In fact, an increasing number of property experts, including commercial property experts Savills, are skeptical of ‘a new normal’ and agree that any change will be a slow one.

Commercial property is widely known as a relatively simple, straightforward asset class. Whilst the economy has undoubtedly taken a sizable hit with unemployment levels rising, there is reason to believe we will see a bounce back in a few years.

Demand Will Remain

The current crisis is not a case of financial mismanagement, it simply could not have been foreseen. Subsequently, although most sectors have taken a hit, there is still relative confidence in the commercial property market.

The fall in property investment is not as severe as was witnessed in the 2008 financial crisis, for example. In fact, property investment was down 51 percent at the turn of the financial crash, compared to 43 percent with the current pandemic.

When glancing at the office market, we are seeing a downward pressure on rents. With less developments coming into the market, we will begin to see a reduction in vacancy rates and subsequently less pressure on rents.

Although more employers will consider introducing a work from home option, offices will not simply cease to exist. Most companies are expected to keep office space for workers available, with greater suitability for team management and meetings.

Chance encounters and dynamic office spaces where employees think freely sparks further creative ideas.

Case studies also overwhelmingly show that employees like to have the option of either working from home or at the office. For the sake of many factors, including mental wellbeing, most companies that have existing offices will continue to operate in an office setting.

A Case for Caution

There will, inevitably, be some stress between landlords and tenants, and landlords and lenders, even with the Government support announced throughout the lockdown.

With Government support largely in aid of business tenants currently coming to an end by 30th September, we may see a high volume of winding up petitions causing large disruption in the market.

Not only do the Government need to communicate clearly to commercial landlords and tenants about what can happen next, commercial landlords and tenants need to be clear and frequent with their communication to ensure that both are on the same page about where they stand in the immediate future.

Where Should You Invest?

Many are cautious when it comes to investing in UK commercial assets. Over the last five years, when compared to European countries, growth has been far lower. France and most of the Scandinavian countries have arguably represented the best value for commercial property investors over the last few years. If location is not an issue when it comes to investing, it is worth considering overseas assets.

Focusing on UK based commercial property, student accommodation, self-storage and healthcare are the most profitable areas. Student accommodation in particular has seen consistent returns for many years now, with students continuing to come to the UK to study.

We cannot see this trend stopping anytime soon, many developers are taking investment for student accommodation and is considered a safe investment with secure investment returns.

Companies that are UK listed but have their assets in Europe are a solid investment option. Although share prices have been negatively impacted, much like most companies across the world, those with assets overseas have seen a smaller hit to share prices with faster recoveries already evident.

To summarize, demand from commercial tenants should remain somewhat consistent. Whilst now is not the ‘perfect’ time to invest in commercial real estate, the caution in the market might favor bold investors that take advantage in the current climate.