Short-term volatility but long-term positivity in commercial property – research

Its report produced with the Centre for Economics and Business Research (CEBR), found that yields had remained strong and that many prime investors were holding back on decisions until Brexit had been completed.

As a result it is predicting a post-Brexit binge from professional investors when the dust eventually settles.

However, with capital growth less certain in the short term, the lender expects to continue seeing investors seek opportunities to add yield, for example in secondary commercial assets.

Shawbrook Bank managing director, property finance John Eastgate (pictured) said that while the short-term outlook for the commercial market is arguably volatile, the long-term perspective remains healthy.

“The market remains fundamentally resilient in terms of both yield and capital growth, stands strongly as an integral part of the UK economy, and is still an attractive asset for professional investors looking for growth,” he added.

Profitable investment despite volatility

The research found that despite uncertainty and activity slowing, the market remained a profitable place to invest and deliver a solid income over the medium- to long-term.

Over the past 18 years, commercial property market returned 308 per cent to investors, compared to 209 per cent for the FTSE 100, and average yields have remained stable—almost unchanged at 5 per cent since 2015.

Factories, warehouses and other industrial properties have shown the most resilience while office space has also rebounded well from the last recession.

However, the retail sector has suffered somewhat and businesses need to adapt to the continuing growth in online shopping.

Industrial and offices stay strong

Over the past few years factories, warehouses and other industrial properties have become the best performing sector over one, three and five years, with yields in line with the commercial sector more broadly.

Stockpiling activity and strong demand for warehouses from online retailers have helped the sector. However, the report warned of the risks of an unwinding of stockpiling and a no-deal Brexit that would severely harm many of the manufacturers that are currently tenants of the industrial assets.

The growing popularity of serviced offices is becoming particularly important as new business start-ups and smaller businesses struggle to keep up with rising rents in cities such as London and Manchester. As a result, they are looking for more flexible spaces.

And the high street is beginning to see the effects of a change to more residential use as landlords look to sell or diversify space.

Shawbrook head of products and markets Daryl Norkett noted that there was an opportunity for experienced investors to grow and diversify their portfolios.

“However, it is important to highlight that the current market requires a certain level of expertise, knowledge, understanding and commitment of time to make the right property investment decisions. But if you do your homework, it can be a great investment,” he said.