Special Features

The resilience of the commercial office space amongst political uncertainty

Rob Lankey - Shawbrook Bank
|
7th August 2019
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"The commercial office space remains resilient and will continue to grow post-Brexit, as long as the demand for flexible office space continues. "

Landlords operating in the residential space have faced a raft of regulatory and taxation changes in recent years. Consequently, it has prompted many savvy investors to explore other pockets of the market, such as the commercial space, in the search for yield and portfolio diversification.

Our ‘UK Commercial Property Market Report’ compiled by the Centre for Economics and Business Research (CEBR) analyses recent trends and examines the sector’s attractiveness as an asset class.

Looking across categories within the commercial property market, the report shows that the office sector in particular has seen strong demand since the last recession. The increasing importance of professional and business services for the UK’s economy provides a strong background for assets in this space. One interesting trend driving demand has been the growing popularity of serviced offices, like WeWork, as new business start-ups and smaller businesses struggle to keep up with rising rents in cities such as London and Manchester and as a result are looking for more flexible spaces.

This flexible revolution of shared workspaces for businesses saw take-up of office space in central London in the first quarter of 2019 at its strongest for six years, Savills research shows. Small businesses are moving into these spaces to benefit from the spare meeting rooms and desks without having to take on the full cost themselves.

We’ve also seen the office sector benefit from the declining high street, as many serviced offices take on former retail premises in UK town and city centres.

The commercial office space remains resilient and will continue to grow post-Brexit, as long as the demand for flexible office space continues. The current market favours those who are willing to adapt and pick out those golden opportunities; in our view the purchase of office space can provide a good investment, as long as investors go into it with a good level of expertise, knowledge and time.

We would suggest, in the current climate, advisers and brokers alike, when discussing investment opportunities with clients should stress the importance of purchasers doing their homework on each individual property and ensuring they understand what they are getting into. With commercial property investment, location together with the spread and mix of the tenants in situ are critical factors. In addition to this, purchasers should be aware of the different types of commercial leases out there, understand the law relating to tenant eviction and allow more time to fill voids. It’s critical for purchasers to decide how active an investor they wish to be in managing a commercial investment, before they commit; and key they understand that an attractive high yielding commercial investment is likely to carry more risk than a straightforward buy to let property. Of course, borrowing from a lender like Shawbrook, which has a deep understanding of this market and a long-standing track record of providing innovative lending solutions, will help the investor select the right lender partner to grow their portfolio with.

As landlords seek to capitalise on new niches, beyond ‘standard’ buy-to-let activity, there is an increasing need for informed brokers to support this cohort of investors. The commercial investment market Shawbrook serves is characterised by resilience and complexity. We believe many opportunities remain for specialist solutions from a specialist lender and Shawbrook are superbly placed to assist.

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