What next for the UK commercial property sector?
This year UK commercial property investors should be able to benefit from a more dynamic landscape with both challenges and opportunities across various sectors.
Whilst economic growth is the buzzword of the government, investors will be looking to see what growth opportunities there are for them through refinancing deals and strategic purchases.
As inflation has fallen, interest rates are likely to follow suit which means more favourable financing will be available, but is it enough to encourage investors to stay in the market and to invest further?
Investors are in my experience more willing to invest this year, and they will be looking at the different sectors and opportunities which will give them the best returns.
According to Savills this year, there is likely to be more investor demand and institutional interest in the UK retail sector than there has been in the last 10 years. In a blog published 07/01/25 they say prime shopping centres, retail warehouse parks and substantial high street parades will be on investors wish lists motivated by the point the market is at in the cycle of receiving both real income and capital value growth and increased consumer confidence and retail spend.
Other opportunities will include:
- Value-Add Investments: Investors are increasingly focusing on value-add opportunities, such as refurbishments and sustainable upgrades, to enhance asset value and meet modern occupier demands. This approach aligns with the growing emphasis on ESG considerations in investment strategies.
- Sectoral Growth: Certain sectors, including industrial and logistics, continue to exhibit strong demand. The limited availability of prime space in these sectors presents opportunities for rental growth and strategic investments and the M1 corridor is well placed to service these needs.
- Technological Integration: The adoption of artificial intelligence and other technologies is becoming more mainstream in commercial real estate, offering avenues for operational efficiencies and enhanced decision-making. Investors who leverage these technologies can gain a competitive edge.
Some of the challenges to keep an eye on in 2025:
- Economic Uncertainty: Despite expectations of faster economic stabilisation, uncertainties persist due to global and domestic factors along with stubborn concerns for fluctuations in growth and inflation figures and the subsequent effect on interest rates leading to lenders remaining hesitant to lend from the reserves they have acquired.
The Chancellor’s spring statement which takes place on 26 March may help settle these jitters. The funding landscape remains relatively restrictive but there are calls for that to be eased to enable growth, and swap market pricing suggests the potential for three interest rate reductions by the end of 2025.
- Evolving Occupier Demands in the office sector: The shift towards flexible work arrangements and sustainability is reshaping occupier expectations. Investors must adapt to the growing demand for flexible leasing solutions, particularly in the office sector where occupiers might want to up or downsize quickly.
- Planning and Regulatory Hurdles: Complex planning processes continue to pose challenges for development projects. While the government has proposed updates to the National Planning Policy Framework to address these issues, the effectiveness of these measures remains to be seen, and they may take some time to filter through.
In summary, while challenges such as economic uncertainties and evolving occupier demands persist, UK commercial property investors in 2025 can look to capitalise on opportunities through strategic investments in value-add projects, sector-specific growth areas, and technological advancements.
James Khakpour-Smith is a partner at Taylor Walton Solicitors www.taylorwalton.co.uk
