The pandemic has had a devastating impact on commercial property, with shutdowns, social distancing, working from home (WFH), all accelerating the shift to online and home deliveries. The likes of Tesco, Ocado and other big supermarket deliveries have been the public’s savior during the worst dark days of lockdown, and they’ve boosted one of the few property sectors to directly benefit from Covid warehousing.
Shops, restaurants and leisure businesses have suffered the most, with the demise of the main street and its negative impact on commercial real estate accelerating and continuing apace. Reduced footfall in some towns and cities has reduced some rents and property values by up to 50%, and despite the easing of restrictions, values will be slow to recover.
After Brexit and the pandemic, war in Ukraine broke out, exacerbating an already dire economic outlook – rising energy and food prices with ever-increasing inflation now appear to be slowing the economy even further, at least in the foreseeable future.
A partial recovery
Before the war in Europe, and a few years after the start of the pandemic, investors were again turning to the commercial real estate market. Cities across the UK have come back to life, although far from pre-pandemic levels – thousands of workers are still working from home and the fuel crisis will make this worse.
Work from home here to stay
Around 40% of working adults in the UK are said to be at work at some point in their week and despite efforts by employers (both private and public) to encourage staff to return to the office, the working lifestyle at work is likely to continue and, to some extent, probably. become permanent.
Labor shortages mean that employers face a market for employees, which means that employers will be forced to adopt strategies to attract staff and talent. With employees present in the office a few days a week, companies will need to consider how they adapt their premises to provide their staff with the best possible space to carry on their work – Covid safe, environmentally friendly and offering the best spaces possible collaboration.
Request for more faculties
As the economy shifts into recovery mode, and at the moment it seems a little distant, all of this has major implications for homeowners. Businesses will compete for offices with the right facilities for employees, even gyms or in-house cafes, in larger buildings.
Businesses looking to increase the size of their workforce will seek suitable retail space that has the floor space and facilities they will need for expansion – modern offices will likely need more floor space per employee than before the pandemic, so fewer staff in the office does not necessarily mean companies will need smaller offices.
Investors in commercial property should be aware of these key elements: improving space and facilities in light of Covid and complying with the latest and future environmental standards (MEES) – all domestic and commercial buildings available at the Buying or renting in the UK must currently have an Energy Performance Certificate and achieve a minimum EPC rating of E.
Government plans aimed for as many homes and commercial buildings as possible to have an EPC rating of C by 2035, where practical, affordable and cost effective. However, more recent government polls and following COP 26, it is now proposed that ratings be raised to C or above for all newly let properties from the start of 2025. These changes if the coming would be phased in, with existing rentals given until 2028 to comply. It is also likely that once new regulations apply, penalties for not having a valid EPC could increase from £5,000 to £30,000.
Reorientation and reconfiguration
There will be opportunities for landlords who adapt their premises to the changing nature of demand for office, retail, leisure and residential space. Despite many companies offering hybrid working and the economic headwinds businesses face, 80% of companies are said to be planning to increase their workforce and the number of people in the office over the next 12-18 months. According to Savills, there will be an increasing demand for prime office space, a key trend in the commercial real estate market.
According to accounting consultancy Deloitte, a necessary complement to hybrid working (part home, part office) will be an increasing use of technology, which enables safe remote working and the maintenance of the highest security. for company data. Buildings will need to be wired and equipped for the collaboration tools and video conferencing facilities that can connect people nationally and globally.
In some cases, tenants expect landlords to provide this technology, and competition for tenants may force them to do so. This will require planning and investment from commercial real estate investors with the possible implementation of smart technologies in office spaces. This will allow businesses to switch seamlessly between online and in-office work, while ensuring complete building security.
Repurposing has become a buzzword for real estate agents and landlords. With many buildings vacant, particularly around shopping streets, banks, offices and department stores in the UK, investors are recognizing the potential for converting commercial properties into more profitable uses.
There has been a growing trend to convert these premises into hotels, leisure and residential premises, and many mixed-use high street buildings.
These properties can be converted to include shops or restaurants on the ground floor, improving the flexibility, profitability and value of the original building. As such, a trend is emerging with landlords transforming disused offices and retail spaces, which can include gyms, bars or other types of commercial units.
Campus development is the current term used to describe developments that contain a number of buildings with ancillary uses, operated as a total integrated whole with facilities including outdoor space, parking, access, building design, landscaping and design aesthetics. In high-traffic areas, this could prove to be very lucrative.
Other current trends
Demand for storage space has skyrocketed: As companies grapple with supply chain issues – just-in-time delivery has been badly hit by pandemic shortages and now the war in Ukraine – a trend has emerged for commercial spaces, offices and vacant commercial premises. be converted into storage facilities.
The pandemic has changed the landscape of the distribution industry and accelerated the growth of distribution centers and warehousing. Covid has had a big impact on retailers’ technology investment plans and this trend continues as the economy enters a post-pandemic phase. With a new normal merge, customer demands could be permanently changed, so a technology transformation is the likely outcome. According to ONS statistics, online sales accounted for nearly 40% of sales during the pandemic years.
Retail and office go local
The decline on the high street didn’t just happen with Covid, it’s a long term trend. However, telecommuting and convenience (local) shopping have seen something of a revival after the pandemic. During the shutdowns, suburban areas have had relative success at the expense of some of the major supermarkets, city shopping streets and major malls. People preferred to stay close to home, avoid large crowds, and use their small stores rather than large supermarkets. They’ve also had more time and flexibility with the remote work trend, giving people more time to visit their local stores on a more regular basis.
Many local independent shops have given exceptional service during Covid and many have managed to maintain their level of footfall despite the difficulties. This trend looks likely to continue after the pandemic, in many places.
The reconfiguration of some main streets in lighted cities, with pedestrianization and ample free parking, has enabled cafes, restaurants and other leisure facilities to provide outdoor seating and increased revenue, as well as increase healthy footfall for other commercial uses.
As independent businesses grow, opportunities arise for some small commercial owners to choose low-priced properties with the potential to redirect conversions. In these cities and suburbs, where dynamism is returning, the demand for localized commercial space is expected to increase. This revival offers opportunities for residential and mixed-use commercial conversions on a smaller urban scale and on main streets.
Ongoing trends in commercial real estate markets, large and small, show that commercial real estate investment, although declining, is by no means ruled out and that the future, as the economic cycle unfolds, seems decidedly more optimistic.
The post-pandemic outlook for the UK commercial property market
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