After a buoyant first six months, the commercial property market is set to finish the year at a much slower pace. But there are still opportunities for savvy investors in Q4 – it’s just a question of where to look.

Warehousing still offers good deals but sector cooling off

The industrial-warehousing sector has been a rock for the commercial property sector in 2022, driving growth in a challenging year. However, even this space is not impervious to the headwinds that are battering the economy.

While there is still an under-supply of warehousing, the combination of rising interest rates (and the impact on borrowing) and increased labour and building material costs (affecting both construction and maintenance) are cooling off demand as landlord profit margins are squeezed.

This is having an impact on both out-of-town sites and urban property, with the cost-of-living crisis notably hampering the performance of the latter, as cuts to consumer spending power are dampening demand for last-minute delivery services and subsequently the need for “dark stores”.

That is not to say that this sector doesn’t still offer good deals. The drop in demand is likely to drive down prices, offering some good deals, but investors will need to be careful about where they put their money – with transport connectivity and rising residential opposition to mega sites both key factors to consider. As has been visible elsewhere, a flight to quality is likely in some form.

Eco credentials key to investment on a market-wide basis

Away from warehousing, the value of buildings that have strong eco credentials is set to continue to grow in the months ahead, making these properties sensible investment targets in uncertain times.

Underlining the importance of this trend is the recent news that the country’s first net-zero retirement scheme has been given the green light. Notably, the retirement village will replace an old office block and an old shopping precinct.

Sustainability has already made its mark on the office sector this year, with demand focusing on properties that can help corporations increase their contributions to decarbonisation. It is also shaping development in the warehousing space, with more companies rolling out site construction and operation on a net-zero basis.

High street and hospitality continue to look fragile

The outlook for the high-street and the hospitality space continues to look challenging despite the decision to extend the nationwide temporary pavement licence legislation introduced in the wake of the Covid outbreak in 2020.

The recent hot weather has certainly been a boon for the hospitality sector, helping repair some of the damage done by the pandemic, but being able to keep outside tables and seating in place is unlikely to be enough to keep this momentum going in the face of winter weather and the worsening cost-of-living crisis. Hotels are also set to feel the pinch as consumers are forced to cut down on spending.

Market uncertainty underlines need for clear financial planning

Of course, all forecasts for the commercial property market in Q4 and beyond must come with a major caveat in the form the impact of rising gas prices, in particular with further supply shut offs from Russia likely.

Increasing energy bills and the knock-on effect on operating costs will further eat into profit margins, not to mention consumer spending power, and shape investor decisions as a result. With governments across Europe putting emergency support schemes in place, it seems likely that the new UK prime minister will have to follow suit, although when and on what terms remains far from clear.

In such times, commercial property market investment requires an increasing deft hand and a clear, organised approach. Part of this planning is having the right commercial loan and mortgage lender on board.

To find out more about A&T Business Associates services for commercial property investors, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.