Where are the good deals for commercial property investors in 2023? A Q4 slump capped a very challenging 2022, with eyes now on the year ahead. Market conditions are unlikely to change quickly, so where should investors put their money?

Why 2022 was a tough year for the commercial property market

If confirmation was required of how tough 2022 was for commercial property investors, Q4 reports leave little doubt as to the state of the market. According to new data from CoStar, the value of commercial property deals in the last three months of the year was £7 billion, compared to £11 billion in Q3, £17 billion in Q2 and £21 billion in Q1.

Figures from MSCI paint a similar picture. The company’s latest monthly UK property index reveals that UK property investments returns fell by 10.4% in 2022, a notably reverse from the 20% growth delivered in 2021.

The downturn has been driven by a number of factors, most prominently the war in Ukraine, and its impact on the global economy, and governmental mismanagement, in particular with regard to financial policy. The sharp rises in inflation and interest rates, affecting spending and borrowing power, has been a significant blow for the commercial property market.

What could drive commercial property market growth in 2023?

However, despite the downturn, there are still opportunities for investors. Some commentators are forecasting a drop in inflation and a stabilisation in interest rates in the months ahead, and while it would be wrong to put too much store in these predictions, such development could help the commercial property market perk up later in the year.

Obviously, amid such market conditions, investors have to work harder to find good deals. With borrowing costs higher, the property returns have to be right, with a flight to quality likely to be an overarching trend in 2023, along with more long-term thinking.

What market sectors should investors be focusing on?

Drilling down, the warehousing and logistics sector looks set to remain a market anchor, not least as the continuation of supply chain disruption necessitates stock holding in greater volumes and as the trend for e-commerce and online shopping continues to be strong. However, there are signs that this market is cooling off a little, most likely as key players recalibrate and look for operating efficiencies.

Residential property development should hold opportunities in the year ahead, as demand for housing remains significant, despite warnings of falling property prices. Notably, energy-efficient properties could be a key investment area, as these types of houses prove attractive to buyers and renters managing soaring energy bills.

Indeed, energy efficiency is likely to be integral to good investment in 2023, not just in the residential sector but across the market. The eco-friendly warehousing space is growing and energy efficient buildings are expected to be a rare bright point for the beleaguered office space sector this year. Climate-conscious businesses are likely to hone in on properties that meet and exceed energy efficient standards.

Why the choice of commercial property lender is key

Against the backdrop of a difficult end to 2022, the start of 2023 was always going to be bumpy for the commercial property market. At present, it seems that investors will have to continue to work hard to find opportunities.

Integral to this process is the choice of commercial loan and mortgage lender. Amid such challenging conditions, investors will need a partner that can see across the lending space and provide access to capital quickly and easily, so that deals can be financed and moved on speedily and decisively.

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.