A market analysis from debt advisory specialists Sirius Property Finance revealed the amount of investment in UK commercial property is going in one direction, and that’s down. Its research shows that investment has dropped across all sectors, with the most significant declines being seen in the industrial and office sectors.
Since the onset of the pandemic, the lure of commercial property investment has dwindled. Over recent weeks, the international financial press has posted headlines warning of doom for the US commercial property sector, with many labelling it a ‘ticking timebomb’ due to an expected onset of keys being handed back to lenders, defaults, coupled with working from home taking preference.
New research by Sirius Property Finance could be showing a similar picture in the UK, with data showing that investment levels are down across the board. For its study, Sirius has analysed UK commercial property investment over the past six months and compared it directly to investment over the six preceding months to understand current trends in one of the economy’s most vital cogs.
The research finds that in terms of money invested, the industrial sector has seen the most significant decline, falling by -55%. In the last six months, £2.9 billion has been invested, down from £6.9 billion in the six months before that.
Office space investment has declined by -55% in the past six months, driven by a -63% drop in investment outside of central London. Despite this, office space is still receiving the highest amount of total investment at £3.8 billion.
Meanwhile, retail & leisure has declined by -45%, with this decline being driven by a drop of -75% coming in shopping centre investment, followed closely by a -74% drop in leisure investment.
In terms of the number of transactions, offices have seen the sharpest decline, falling by -44%, driven by a -64% drop in central London.
Retail & leisure transactions have fallen by -40%, with shop units enduring the most severe drop of -47%. Meanwhile, industrial transactions have fallen by -35%.
The average amount of money invested via each transaction has also fallen across the board. The most significant drop has come from the industrial sector, falling -35% from £22 million to £14.3 million.
The average investment made into office space has reduced by -19%.
In the retail & leisure sector, the decline is -8%; however, it is only saved from being a more dramatic drop by a remarkable 194% increase in the average transaction amount put into shop units which have risen from £5.4 million to £15.9 million in the last six months.
Kimberley Gates, the Head of Corporate Partnerships at Sirius Property Finance, said, “It has been a difficult six months for the commercial sector. It has been struggling since the start of the pandemic and the subsequent retreat from town and city centres, but now that additional economic uncertainty has been placed on top, the situation has worsened.
Looking forward, the commercial sector’s recovery is going to be dependent on taking a more contemporary approach to space. While industrial units are likely to return to strength due to the immovable presence of e-commerce, retail and offices need to adapt to modern sensibilities.
Mixed-use space is important – living, working, and playing in one multifaceted building, for example – but so too is a more experiential approach to physical retail, providing shoppers with something more than online retail can provide. We’ve seen how successful this can be with Barnes & Noble in America and beauty brand Sephora across mainland Europe.”
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