There are clear signs the commercial property market is adjusting to today’s high interest rate environment according to specialist lender Together.
Its new report on the sector says adjustment is down to a bullish appetite of commercial developers, investors, and landlords either exiting or diversifying portfolios to mitigate falling yields and revenues.
Among all respondents, almost a quarter said student housing offered the most appealing property investment opportunity over the next 12 months. This was followed by housing developments and luxury residential properties.
While 29 per cent of property investors surveyed are aware falling property values may make securing lending difficult this year – it’s not preventing the majority from capitalising on emerging growth sectors.
Nearly one in five of property investors surveyed are most excited to pursue retail projects this year, followed by housing developments and student accommodation.
For all respondents, office space, hotels and industrial or manufacturing sites trigger the most hesitancy when considering potential commercial market opportunities this year.
A further 44 per cent are planning to de-risk and shrink their property portfolio over the next 12 months. Around half of those who are planning this will do this in the next three to six months, with about a quarter planning on doing it sooner.
While long-standing funding barriers and high interest rates continue to block access to the market for some – with 22 per cent of all respondents not confident about being able to access additional finance if they needed to – Together says its report makes evident the scale of the opportunity across the UK for property entrepreneurs.
Indeed, the total secured commercial lending is predicted to rise by 32 per cent from an estimated £90 billion in 2023 to £118 billion in 2028.
The report claims that some 52 per cent of commercial landlords, investors and developers surveyed feel specialist lenders are best equipped to deal with their particular lending needs. This comes as over two thirds of respondents anticipate the amount they must borrow to support their investment strategy will rise in the next 12 months.
Rob Thomas, Economist and Principal Researcher at the Intermediary Mortgage Lenders Association, says: “In the short term, while inflation is coming back under control, the higher interest rate environment will take some adjustment for commercial property businesses, landlords and developers– including de-risking portfolios and diversifying into new growth sectors.
“However, for those looking for growth in the medium to longer term there are opportunities across the sector this year onwards. And the insight on the ground is that the sector is in rude health. The research we’ve undertaken shows that, while some property professionals are scaling back or exiting the market, the majority are committed to developing their portfolios and many are even taking advantage of the temporary reduction in property prices to expand.”
