Almost every industry felt the impact of Covid-19. The commercial property market was no exception.
Social distancing, remote working and multiple lockdowns forced businesses to move their operations online. Shops and restaurants had to close. As such, much was said about how the reduced footfall in urban areas has had a negative effect on commercial real estate.
That said, two years on, investors are again turning to the commercial property market. Towns and cities have come back to life in the past 12 months, creating new opportunities for property investors.
This blog will examine the future trends that could shape the commercial property market post-pandemic. It will also review key points to consider when looking for commercial bridging loans.
1. Competition for prime office space
Despite many businesses offering hybrid working, 80% of business leaders are planning on increasing the amount of people working in-office in the next 12 months. As such, growing demand for prime office space will likely be a key trend in the commercial property market.
Source: Savills
With employees only using the office for a few days a week, businesses will be keen to provide their staff with the best possible space to carry out their work. By doing so, they will be hoping to tempt them to leave the convenience of their home and back into the office with more regularity.
As such, many companies will be competing for offices with employee benefits like an in-house gym or café, driving up prices in the commercial property sector.
On top of this, many businesses are looking to increase the size of their workforce. With 80% of companies planning to hire more staff, firms will look to the commercial property market to provide the floorspace they need to accommodate.
Source: The Guardian
As such, demand for prime office space is rising around the UK. In big cities like Manchester, Leeds and Glasgow, this trend will be particularly prominent in the next few years.
Source: Market in Minutes: UK Commercial
Commercial property investors could consider how changing demand for office space – how much businesses need and the type of space they are looking for – will open new opportunities for those able to cater to these trends. This might involve renovating existing office buildings.
2. Increasing demand for technology
A necessary by-product of the rise of hybrid working will be an increased focus on technology.
If businesses are to successfully integrate remote and in-office working, they will need the tools and equipment to be able to do so.
From online collaboration tools to video conferencing software that can connect multiple people on calls, a recent survey found that three quarters (75%) of businesses will invest or partner with property technology businesses.
Source: Deloitte
In some cases, businesses will expect their landlords to provide this technology, which will require some investment from commercial property investors.
As such, a future trend in the commercial property market will be the implementation of smart technology in office spaces. Allowing businesses to seamlessly switch between online and in-office working.
3. Repurposing spaces
Despite these positive trends, some investors will recognise their commercial properties could be more profitable if converted.
Indeed, there is a growing trend of non-office properties, such as hotels or former industrial buildings, being transformed into residential dwellings.
On top of this, these properties are often built to include shops or restaurants at ground level, improving the profitability and value of the original property.
As such, a similar trend could emerge in the commercial property market. For example, a landlord with a disused office space might change its use to a gym, bar or other type of commercial unit.
In areas with high footfall, this could prove lucrative.
4. Demand for storage will grow
One thing that has become clear during the pandemic, as well as during the war in Ukraine, is that supply chain issues can deeply affect businesses and the wider economy. With no sign of this disruption being alleviated any time soon, its predicted that supply chains will not return to historic levels until the new year at the earliest.
Alongside this trend, there has been a growing popularity in online shopping during the pandemic. In 2021, for example, online retail sales accounted for as much as 37.7% of all sales in the UK.
Source: ONS
In the commercial property arena, the demand for storage space is only going to increase as businesses grapple with supply chain issues and online demand. A trend could emerge that sees commercial spaces like offices being converted into storage facilities.
5. Localised retail
For a few years now, much has been said about the decline of the British high street. Even before Covid-19 had made the headlines, the value of retail rentals was under the microscope.
While these values continue to stutter, there are some areas that provide cause for optimism.
As a result of lockdowns, suburban areas have enjoyed relative success as people favoured closer, smaller shops over larger supermarkets. On top of this, the remote working trend has given people more time to visit their local shops on a more regular basis.
Consequently, local, independent shops have managed to maintain their levels of footfall. This trend is likely to continue post-pandemic.
The rise of the pedestrianisation of local high streets has also contributed to this. In short, it has allowed cafes and restaurants to offer outdoor seating to grow their revenue, as well as increasing footfall for other commercial properties.
As independent businesses grow, and new businesses are encouraged by the refreshed buoyancy of the high street, demand for localised retail spaces is set to rise.
How MFS can help commercial property investors adapt to these trends
What these trends show is that commercial property investors have a lot to consider when assessing their options in this market.
Further, acquiring finance for commercial investment can prove complex. So, investors should carefully consider their financial options before embarking on a project.
Here at MFS, we consider all applications on a case-by-case basis. By underwriting from the start of the application process, we can take on projects other lenders might shy away from.
For example, a broker and client that MFS had provided a loan to earlier this year returned requiring fast finance for a large commercial asset in Greater Manchester. The client was also completing the purchase via a private company.
The shopping centre was a mix of tenanted units, some of which were vacant. The commercial property was larger than the previous asset MFS had helped the client to purchase.
However, MFS knew the client history of purchasing such properties, as well as their capability and credibility when investing in shopping centres.
While some of vacant units may have discouraged other lenders, MFS trusted the broker and borrower based on their expertise within the field. We also uncovered the largest unit on the ground floor had a longstanding lease until 2070.While that tenant had seen their trading slowdown, the client informed MFS a potential buyout was on the table.
There were also minor concerns over the age and condition of the property. MFS called upon its valuation panel. We found a valuer that had previous experience with these types of commercial properties.
When MFS received the valuation report, the company was comfortable that the asset remained a low risk, boosted by the fact it had recently undergone a thorough refurbishment.
We looked at the bigger picture, including their previous success when investing in other shopping centres. Our team then had the expertise to overcome potential obstacles that arose along the way and provided our client with a fast loan and high-quality service.
To find out how we could support your commercial property investment, check out our website.
Disclaimer
MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.
