Outlook for UK commercial property brighter as investor demand grows

There has been a jump in demand to invest in commercial property compared with this time last year, new data shows.

Rightmove’s new Quarterly Commercial Insights Tracker reveals that demand to invest in commercial properties of all types has risen by 11% compared to the same three-month period last year, the biggest quarterly jump in demand since 2021.

The property portal, which tracks supply and demand, including all enquiries to commercial agents about listings for lease, or to invest in via Rightmove, reports that the industrial sector has seen the biggest increase within the commercial investment sector. Demand to invest in industrial commercial properties is up by 34% compared with Q3 2023.

Some analysts suggest one contributing factor could be the Bank Rate cut in August, and a trend of lowering mortgage rates in the commercial property market, which has made borrowing finance cheaper.

Andy Miles, Rightmove’s MD of commercial real estate, said: “We’ve seen some sharp increases in demand across all sectors in the investment market when compared with the same period a year ago. A likely contributor is falling interest rates, which is of course decreasing the cost of capital and making investing in commercial property more attractive.”

In other trends, the industrial sector is also leading the way in the leasing market. Demand to lease industrial commercial properties is up by 10% compared with the same three-month period last year, the most of any commercial sector. Supply is also up by 14% in this sector compared with this time last year.

In the central London office leasing market, boroughs to the west including Westminster and Kensington & Chelsea are seeing a rise in demand, while the City of London also returns to positive growth this quarter. By contrast boroughs to East including Hackney and Tower Hamlets have seen a drop in demand compared with the same three-month period last year.

Claire Williams, head of UK & European industrial research at Knight Frank, commented: “This year, we have seen a return to a steady and robust occupier market, with take up of industrial space on a par with levels recorded in pre-pandemic years. With inflation now below the Bank of England’s 2% target and above inflation wage growth, the economic outlook and consumer confidence are improving. Consumers starting to loosen the purse strings and spending more on discretionary goods, in turn, driving demand for more delivery services. As a result, businesses are feeling more confident in pushing forward with expansion or relocation plans, in turn, boosting demand for industrial and logistics facilities.

 “It’s a really interesting time for the industrial and logistics sector. Managing supply chains is becoming more complex, with a heightened emphasis on sustainability across global networks. Businesses now face growing reporting requirements and an increasing demand for supply chain transparency. Geopolitical threats and tensions are also reshaping international supply chains. Given the sector’s close ties to transportation and global networks, it stands at the forefront of these changes

 “As a result of these growing complexities, businesses are increasingly turning to specialist third party logistics firms (3PLs) to manage more of their supply chain infrastructure. These specialized firms leverage cutting-edge technologies—such as artificial intelligence (AI), big data analytics, and blockchain—to optimize supply chain ecosystems and offer end-to-end visibility and enhanced decision-making. As these technologies become more widely adopted and logistics services are increasingly outsourced, we will see demand progressively focus on well-located, modern facilities.

 “We expect both leasing and investment activity to further strengthen. We are in the early stages of an interest rate cutting cycle, and as debt financing costs reduce, we will see greater levels of activity from developers, operators and investors.”

John Mitchell, MD at Christie Finance, added: “Although the Bank of England Base Rate is starting to fall, there is an acceptance that rates are not going to return to the record lows experienced from 2009 to 2022.  During this 13-year period, investors became accustomed to borrowing very cheap money. Times have changed and there is now greater uncertainty. Therefore, some investors are potentially diversifying away from residential investment and looking for higher yields, and commercial property generally offers this. Coupled with strong availability of bank funding, the commercial market is becoming increasingly attractive”.

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