As widely expected, the commercial property market has endured a difficult start to the year and recent banking sector instability raises the prospect of further challenges, but opportunities for investors with access to capital remain and could increase going forward.

The market finished 2022 on a downward trajectory, a slide fuelled by rising interest rates and lender caution, and conditions and performance changed little in Q1, with these factors continuing to put pressure on investors and returns.

During the quarter, interest rates were raised twice, most recently in March, and lenders have remained steadfast in their strategy. At the same time, property prices have continued to fall. As a result, conditions for investors have become increasingly difficult, with refinancing deals particularly challenging.

However, for all the dark clouds in Q1, there has been talk of an upturn ahead, or at least an easing of constraints for investors. However, the recent collapse of a number of banks and its impact on the global banking sector has raised fresh doubts about what lies ahead for the commercial property market in the UK. There is some confidence that the UK market is better protected than others, but there remains considerable uncertainty.

Where can investors find good deals in 2023?

Despite the turbulence, market conditions are creating opportunities for savvy investors, as others react to higher borrowing rates and liquidity issues, and there is a good chance that from Q2, a move towards a buyer’s market could be seen, as long as buyers have the capital to act.

The build-to-rent sector is expected to yield decent returns going forward, with demand for family homes set to be a key driver. There was notable movement in this area last year, including from retail giants such as John Lewis, and investment is expected to continue in the months ahead. The steady demand for larger residential property is key here.

In this sector and elsewhere, another key growth area is green properties. The demand for this type of building is rising across the board, with landlords able to get higher rents for properties that meet new environmental standards (new EPC regulations come into force in April) and are a better fit for tenants focused on sustainability and responsibility.

What office and retail deals should investors look for?

One area in which the trend for green buildings is key to improving performance and good deals is the office space. Hit hard by the pandemic, rising interest rates and lender caution, sustainable buildings offer much needed potential for investors in a space where terms such as “hotelification” and “earn the commute” have become key terms.

As for the retail sector, as side from the move toward converting central retail space into residential or leisure use, a trend that is proving integral to generating sales and growth, and to meeting the online shopping challenge, is the ability to offer experiences other shops. Residential spaces that can provide this kind of additional attraction look better set for the immediate future.

Investing in 2023 and your commercial property lender

As Q1 draws to a close, the commercial property market is in a position many predicted – buffeted by some serious headwinds. However, that isn’t to say that there aren’t good deals for clever investors, with a chance that conditions may ease from Q2 onwards.

As such, the market may throw up some good opportunities going forward, but integral to taking them will be access to capital. This makes the right choice of commercial loan and mortgage lender critical.

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.