Much of the commercial property sector was hit hard in the recent recession - with a lack of tenant demand, falling rents and a dearth of lending availability contributing to an unappealing proposition for investors. However, some reports now claim that a recovery could be underway in the commercial market. Some investors might see an opportunity here - perhaps mirroring the recent situation in residential property - to acquire 'bargains' at a low point in the market and then benefit from, hopefully, increasing tenant demand. So in this report we will look at some facts and figures and then take in some opinion on what's happening out there in the market.
First of all how are commercial property prices faring? Figures from IPD, the provider of real estate performance data, collated for FT Money, suggests that prices in some UK regions fell in excess of 40% from their peak in 2007 to mid-2013. Even in central London prices were still 13% below peak. They say that capital values began to rise for the first time in 2Q 2013 after 18 months of consistent decline, although only by 0.4%.
So, is this tempting some private investors to invest once again? The November figures from 'UK Commercial Property Monthly' (CE Economics) report that the value of commercial property deals 'spiked up' in September at £5.9bn, from £4.3bn in August, the largest monthly total since July 2007. (It does point out that the figures were distorted to some extent by a single £1.4bn transaction.) It says that office deals, especially in central London, continued to dominate with industrial deals being 'solid not stellar' but with the retail sector 'lagging further behind'.