Alliance Fund analysed historic data on the volume and value of transactions, as well as the average yield offered by commercial real estate investment opportunities across the UK. Based on this historic market data Alliance Fund then forecast where the sector will sit come the end of 2022.
Commercial real estate transactions
The figures show that, across the board, commercial real estate transactions are expected to dip by 20.1% in 2022 versus 2021. This comes following an initial 16.4% revival in transaction levels seen in 2021 following a difficult pandemic period.
In fact, just one sector of commercial real estate is expected to maintain momentum in 2022, the leisure sector, with Alliance Fund forecasting a 13.6% increase in leisure focussed real estate transactions.
The biggest decline is expected to come within the industrial sector, with commercial sales estimated to fall by 42.8% on an annual basis.
Commercial transaction values
In 2021, £65.8bn worth of commercial real estate changed hands across the UK, up 40.4% compared to 2020. While Alliance Fund estimates that some £53.8bn worth of commercial real estate transactions will still take place in 2022, this would mark an 18.1% drop on levels seen in 2021.
The biggest declines in transactional value are expected to be seen across unit shops (-58.2%) and regional UK office spaces (-39.9%). However, both shopping centres (+38.3%) and leisure (+11.9%) are forecast to enjoy a boost to the sums spent in 2022.
Commercial rental yields
One standout factor behind the continued struggles of the commercial real estate sector is the yields available to investors. The research by Alliance Fund shows that the average yield for commercial properties fell by 0.16% between 2020 and 2021 and is expected to fall by a further 0.28% in 2022.
Shopping centres are forecasted to see the biggest decline in profitability with the average yield forecast to fall 1.87% in 2022, while unit shops are the only sub-sector expected to see any positive growth, up 0.35%.
Iain Crawford, CEO of Alliance Fund, commented: “The commercial real estate sector has faced a myriad of challenges as a result of the pandemic and shopping centres, office spaces, leisure and other retail focussed units were hit particularly hard by our inability to leave the house in order to work and socialise.
"However, the commercial sector had shown signs of a revival last year, as the world returned to a sense of normality and we tentatively returned to the workplace.
"Unfortunately, it seems this boost was very much down to the initial novelty of being able to do so, with the market forecast to dip again in 2022. This continued uncertainty has no doubt been driven by a greater acceptance of working from home with regard to commercial office spaces, while many retail spaces are once again struggling as a result of the ease and convenience of online shopping.”
