In recent years we have seen a marked shift in investor sentiment towards commercial property. In the latest RICS UK Commercial Property Market Survey, investors expect commercial (ex-retail) capital values and rentals to keep growing over the next 12 months. According to agents and finance brokers, investor enquiries are strong - often in a redirection of interest away from residential. The asset class also enjoys positive coverage in the media – both traditional and social. Property networking events tend to be better attended when a commercial-focused speaker is featured. And training/education around the sector is more in demand.
There are good reasons for the heightened interest in commercial. In fact, the stars seem to have aligned for the sector. Supporting factors include:
Despite ongoing Brexit concerns, employment levels in the UK are at all-time highs. Inflation levels have been comfortably low and interest rates remain low. The unemployment rate (see chart below), at 3.9%, is close to the lowest level since 1973. One natural beneficiary of this stability is corporate demand for office space, which in turn has driven more investor interest.
All these employees have to sit somewhere. So it’s not surprising that office vacancy levels have dropped. This year, vacancy rates in office buildings reached a post-crisis low of 4.4% (see chart below - showing London office vacancy rates – source: Knight Frank, Statistica).