Interested in buying commercial property?
Now may be a good time to strike.
Courtesy of rising interest rates and economic uncertainty, 2022 saw the fastest fall in UK commercial capital values on record – with official figures reporting a 13.3% decrease in overall capital value and a 9.1% decrease in annual total returns across the board.
The industrial sector was the hardest hit, with capital values down by 21% and a 18.1% reduction in annual total returns. Retail property capital value fell by 8.1%, whilst offices were down by 12.1%. And both saw negative returns of -2.1% and -8.3%, respectively.
But could this downward cycle be about to end?
There’s no guarantee how the year will pan out – and it’s still important to be cautious – but based on the latest CBRE Monthly Index for January 2023, the outlook for the UK commercial real estate sector is certainly starting to look a little more positive.
An optimistic outlook for commercial real estate
There’s no denying, commercial property capital values did continue to decline in January 2023. However, the crucial thing to note, is that the rate of this decline appears to be slowing down – reducing by just 0.4% across all property sectors (industrial, retail and office).
Here we take a closer look at the individual figures.
Industrial property capital values declined by 0.6%.
Both industrial segments – including ‘Industrials in the South East’ and ‘Industrials in the rest of the UK’ – reported similar falls, with a decrease in capital value of 0.6% and 0.7%, respectively.
Over the course of the month, industrial total returns also fell by 0.2%.
Retail capital values decreased by just 0.2%.
In fact, whilst both standard shops and retail warehouses recorded very marginal capital value declines (-0.3% and -0.2%, respectively), shopping centres actually recorded an increase of 0.1%.
The sector also posted a positive total return of 0.4%.
Office sector capital values reduced by 0.6% in January.
This reduction was driven by an office capital value decline in both Central London (-0.3%) and Outer London (-0.9%), as well as a decline in office capital value across the rest of the UK (-0.9%).
In addition, overall total returns fell by 0.2%.
What do these numbers actually mean?
A cautious interpretation is that values have broadly levelled off, reflecting a lack of transactions.
The more optimistic view? Things are about to start improving for the commercial real estate sector.
Whilst it’s too early to be 100% sure, these latest figures do suggest that commercial property values may have reached the trough of their current downward cycle. And after plummeting severely in 2022, this could mean they will start to climb again as we head further into the year.
If this turns out to be true, 2023 could offer the buying opportunity of a generation for many investors – essentially, providing a chance to purchase commercial property at its nadir, before capital values and annual returns begin to bounce back.
Taking that opportunity?
It’s certainly been a turbulent couple of years for commercial real estate. Whether or not now is the right time to invest in commercial property is a huge decision. And unfortunately, this is something we’re unable to provide advice on here at St Helens Law.
However, if you’ve done your own research, found the ideal commercial property or business premises, and are happy to go ahead, we can certainly assist with your purchase.
Our growing team of commercial property solicitors have unrivalled expertise in this area, and can guide you step-by-step through the full commercial conveyancing process. We pride ourselves on delivering a proactive service, with a strong focus on client care. In some instances, work may be able to be carried out on a fixed fee basis – ensuring it’s as cost-effective as possible – and our fees will be discussed at your initial FREE consultation.
So, if you have any questions about commercial property law, or would like a quote, please don’t hesitate to get in touch. You can reach out to our commercial conveyancing solicitors via our online enquiry form. Or if you prefer, you’re welcome to call us at any time on 01744 742360.