"The optimism of the sector, combined with the economic recovery, means those investors that are well poised with the right finance support will ultimately be in the best position to capitalise on these opportunities"
- Chris Baguley - Together
While the turbulence evident across interest rates throughout 2023 has eased, debt and the cost of borrowing continues to be at peak levels – with a third of property developers, landlords and investors citing inflation (30%) and high interest/mortgage rates (27%) as the biggest challenge to plans this year.
However, there are clear signs the commercial property market is adjusting to this high interest rate environment. According to a new report from Together, a major part of this adjustment is via the bullish appetite of commercial developers, investors, and landlords either exiting or diversifying portfolios to mitigate falling yields and revenues.
Among all respondents, 23% said student housing offered the most appealing property investment opportunity over the next 12 months. This was followed by housing developments (21%) and luxury residential properties at 19%.
While 29% of property investors surveyed are aware falling property values may make securing lending difficult this year – it’s not preventing the majority from capitalising on emerging growth sectors.
18% of property investors surveyed are most excited to pursue retail projects this year, followed by housing developments (17%) and student accommodation at 16%.
For all respondents, office space (17%), hotels (15%) and industrial or manufacturing sites (13%) trigger the most hesitancy when considering potential commercial market opportunities this year.
A further 44% are planning to de-risk and shrink their property portfolio over the next 12 months. Around half of those who are planning this (48%) will do this in the next three to six months, with about a quarter (23%) planning on doing it sooner.
While long-standing funding barriers and high-interest rates continue to block access to the market for some - with 22% of all respondents not confident about being able to access additional finance if they needed to - Together’s report makes evident the scale of the opportunity across the UK for property entrepreneurs.
Indeed, with an outlook on the commercial sector for the next three to five years, from economist Rob Thomas; the total secured commercial lending is predicted to rise by 32% from an estimated £90bn in 2023 to £118bn in 2028.
Over half of UK commercial market leans on specialist finance to pursue plans
52% of commercial landlords, investors and developers surveyed feel specialist lenders are best equipped to deal with their particular lending needs. This comes as 69% of respondents anticipate the amount they must borrow to support their investment strategy will rise in the next 12 months.
Demand is apparent with 23% of all respondents feeling the commercial market is only improving and there are far more opportunities, 18% saying the opportunity to generate more money is high and 16% that purchase prices have reduced allowing them to snap up deals and new opportunities.
Chris Baguley, Group Channel Development Director at Together, commented: “As we look at the UK commercial property landscape, the scope and diversity of the opportunities is impressive. Whether it's student housing, housing/residential development or repurposing retail and other larger sites, the next few years are going to provide significant growth for the UK commercial property market.
"The optimism of the sector, combined with the economic recovery, means those investors that are well poised with the right finance support will ultimately be in the best position to capitalise on these opportunities.”
Rob Thomas, Economist and Principal Researcher at the Intermediary Mortgage Lenders Association said: “In the short term, while inflation is coming back under control, the higher interest rate environment will take some adjustment for commercial property businesses, landlords and developers– including de-risking portfolios and diversifying into new growth sectors.
“However, for those looking for growth in the medium to longer term, there are opportunities across the sector this year onwards. And the insight on the ground is that the sector is in rude health. The research we’ve undertaken shows that, while some property professionals are scaling back or exiting the market, the majority are committed to developing their portfolios and many are even taking advantage of the temporary reduction in property prices to expand.
"When looked at in the round, the scale of the opportunity is significant. To put it in perspective, total secured commercial lending is predicted to rise by 32% from an estimated £90bn in 2023 to £118bn in 2028.”
