Twelve local authorities across England and Wales saw commercial property investors spend over £1bn on property transactions during 2019. This is a drop from 14 local authorities who passed the £1bn investment mark in 2018 and 15 during 2017.
Across all of England and Wales, annual investment in property by commercial buyers totalled £88.7bn according to the latest HM Land Registry (HMLR) data, down from £104bn in 2017 and £101bn in 2018.
These declines can be explained by the political and economic uncertainty throughout much of 2019, due to moving Brexit deadlines, only for the clouds to part at the end of the year following the snap December 2019 election.
The full impact of the Covid-19 lockdowns taking hold from March this year makes it a certainty this downward trend will continue in 2020, with implications for the market recovery into 2021 and beyond.
There are however silver linings. Despite overall commercial activity falling in 2019, many of the 12 leading councils - led by the City of London - enjoyed annual market growth.
The City of Westminster ranked top for commercial property investment in 2019 for a third successive year. However, it also exemplified the wider market decline, with £4.9bn of commercial spending compared to £8.2bn in the previous year. Tower Hamlets – among the biggest risers of 2018 – also saw buyer activity drop back from £2.5bn to £1.6bn, while Southwark also fell from £2.2bn to £1.3bn.
In contrast, spending in the City of London increased from £2.1bn to £3.3bn over the same period. Hammersmith and Fulham also enjoyed a commercial investment increase of nearly £1bn year-on-year, rising from £1.0bn in 2018 to £1.9bn last year.
Other Greater London boroughs that saw commercial spending increase year-on-year included Camden, Kensington and Chelsea, Newham and Lambeth.
The figures also highlight the need for the UK government’s “levelling up” strategy to deliver a tangible boost to regional economies, as the country grapples with potential exit and recovery strategies from the current coronavirus lockdown.
While Manchester, Leeds, Birmingham and Nottingham all recorded over £1bn of commercial buyer spending during 2018, only Birmingham passed the £1bn mark in 2019 based on the latest available data, and itself saw a reduction from £1.7bn to £1.1bn. Alongside Birmingham, Wokingham in Berkshire was the only other local authority outside Greater London to see commercial buyers spend over £1bn in total on property transactions last year – registering almost a four-fold increase from £265m in 2018.
Other areas to see significant growth of commercial spending across England and Wales in 2019 included Bournemouth, Christchurch and Poole; North Warwickshire; Somerset West and Taunton; West Suffolk; East Suffolk; and Folkestone and Hythe.
Although the current lockdown will continue to have a significant short-term impact on the property market, a recent forecast from Savills suggests that pressures should ease towards the end of the year, with growth returning between Q4 2020 and Q2 2021.
While the recovery is forecast to be stronger and quicker than after the 2008/9 financial crisis, greater efforts will be needed to ensure that the benefits of property investment appetite from commercial buyers are shared beyond the capital.
Caroline Robinson, commercial real estate business development manager at Search Acumen, commented: “The commercial real estate sector has undergone some serious tests, with Covid-19 following hot on the heels of many months of Brexit uncertainty in 2019. Despite this, we cannot dwell in the doom and gloom and instead urge the sector to pragmatically assess the long-term impact of the pandemic and how best to prepare to bounce back in late 2020 and 2021.
“While housebuilders and construction companies are gradually opening sites in May, we should not be lulled into thinking that these sectors will continue to operate as normal. The pandemic has prompted widespread shifts in how individuals and businesses conduct their daily activities, with an overall move towards digital and remote working practices, which are likely to persist long after lockdown measures are relaxed.
“The commercial sector should think realistically about the longer-term impact on office spaces as more people advocate working from home in order to strike a better work life balance, not to mention the positive environmental effects these practices have generated. This may prompt a drop in investment in offices as instead the focus shifts to renovations and creating more flexible working spaces in communities and at home. Commercial real estate developers need to adapt their offering – including by putting environmental considerations front and centre in their development plans going forward.
“Our analysis reveals clear regional disparities and also indicates how the government needs to do more to support regional developers and to encourage investment in regional infrastructure and real estate projects beyond London.”