Spotting profitable buying opportunities in tough as well as good times is key to success in commercial property investment, writes Jake Webster, managing director at the Seventy Ninth Group.
A rising tide lifts all boats, and that’s true of the property industry as well as the wider economy.
The early noughties boom, followed by the 2008 bust is a perfect example. A combination of easy access to credit and double-digit property price inflation enabled amateur investors to make a profit with little to no experience. But many got their fingers burnt during the resultant global financial crisis.
Experienced property asset managers, like Seventy Ninth Group, had the expertise to spot great property buying opportunities amid the falling market, enabling us to buck the trend and remain profitable.
We’re seeing a similar pattern in today’s commercial property market, with potentially desirable buying opportunities available for those with the specialist knowledge and the funds to invest.
Commercial comeback
The commercial property sector has struggled following the shift to homeworking post-Covid, along with soaring inflation and the cost-of-living crisis.
After a tough 2023, property values and confidence are down. Office take-up at the end of 2023 was 10%–15% below pre-pandemic levels across the UK, say Savills. And last year saw the lowest investment levels in the market for 20 years, according to CBRE.
But it’s not all bad.
Those who understand commercial property, and have operated through more than one economic cycle, know that underlying market conditions only make up part of the picture.
Strong buying opportunities will always present themselves to those with expertise, experience, and trusted relationships. Plus, 2024 has already revealed positive signs in the commercial property sector.
Here are five reasons now could be a good time to invest:
1. Growth opportunity
The sector is poised for growth in 2024 after a challenging 2023, presenting an opportunity to potentially buy at the bottom of the market.
According to Savills, £8bn was invested into commercial property in the first three months of this year, putting it on course for a 12% increase over the year.
CBRE also forecasts a rise in investment volumes for the office market in 2024, prompted by falling interest rates in the second half of the year, as inflation comes back to target.
2. Return to the office
The last year has seen high-profile examples of large employers asking their workers to come back to the office, from the government’s pressure on civil servants to some of the UK’s largest banks.
And these are not outliers. Companies want workers to return to the office, with 98% actively encouraging workers back with rewards including free food and access to gym facilities, according to Towergate Health and Protection.
Over a third (37%) are now making some office days mandatory.
3. Reversal of the race for space
The return to office working has contributed to a reversal of the ‘race for space’ in the residential market. During the pandemic, demand rose for larger out-of-town homes as more people worked remotely.
But the tide has turned as workers have gone back to the office.
The last year has seen the price of flats rise more sharply than larger homes (2.7% compared to 1.7%), according to Halifax, as workers returned to urban living and first-time buyers responded to stretched affordability.
The reversal of the ‘race for space’ goes as far back as May 2022, when Rightmove noted a demand for city-centre living as people prioritised being closer to the office.
4. Flight to quality
Despite the challenging market, demand remains strong for high-quality office space in the best locations.
CBRE said that companies are looking for the best quality, best located, and most environmentally sustainable buildings to attract their employees back to the office.
Demand is outstripping supply in this sub-sector, a trend that’s expected to continue this year and beyond.
Knight Frank’s research supports this, noting that nearly 84% of office take-up last year in the South East was for new or grade-A space, with occupiers seeking quality over size.
At the Seventy Ninth Group, we’ve seen this demand for prime office property and have tailored our strategy accordingly.
Millennium Park in Warrington is a great example of how we’ve renovated office space in a prime location to meet the needs of modern SME businesses and workers – from electric chargers to conferencing facilities and outdoor space.
5. Sharp rental growth
Rental growth remains robust, and office space markets saw nearly record headline rents in 2023, said CBRE. It forecasts further growth this year of 3% across UK office markets at the prime end of the market.
Again, it noted that the best-located buildings with the right amenities will see the highest growth in rents, due to the supply/demand imbalance.
The data highlights a bounceback in the UK office sector, after a difficult couple of years.
Conditions remain challenging, of course, but this is a market that is far from dead, representing an investment opportunity for those with good insight into the office space sector.
The latest RICS UK Commercial Property Monitor noted that the market had ‘reached the bottom of the current cycle’ and pointed to improved sentiment in the office market, particularly in London. The North will follow.
Buying opportunities abound
The commercial sector is poised to recover, with experts predicting accelerated growth from 2025. This makes now a potentially great time to explore opportunities within the sector.
But succeeding in this sector isn’t just about timing the market. It’s about knowing a good opportunity when you see it, in both benign and challenging economic backdrops.
Asset management businesses that are agile with a willingness to adapt their approach are well placed to take advantage of good buying opportunities, because no two property projects are the same.
A good strategy lies in a bespoke approach of structuring every commercial project differently, using the most appropriate business models, from acquiring, renovating, and selling, to the management and letting of commercial office assets.
This means adding value for partners and investors, whatever the prevailing market conditions.
- Jake Webster is managing director at the Seventy Ninth Group
