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What botched Budgets mean for the commercial property market

The botched Budgets of recent weeks have shaken up the prospects for many markets, including the commercial property sector. For this market, the big questions are, what will happen to the sector going forward and what does this mean for investors?

Policy chaos, market forecasts and reframing opportunities

Ominously, Goldman Sachs sees the prospect of soaring interest rates and the impact on borrowing capacity as having a profound effect on the commercial property market, with the organisation predicting a fall in values of between 15 and 20% over the next two years.

This is startling news. How much stock should be put in the forecast? While it would be churlish to think that economic policy could not change drastically again in the near future – say as a result of a new Tory party leader or a new government – it is likely that the current turmoil may hit confidence in the short term.

However, for all the chaos, commercial property investment opportunities remain. Critically, the uncertainty created by the bungled Budget and subsequent U-turns and new policies is likely to cause the market to double down on its flight to quality, and this is where investors are likely to focus their attention.

Warehousing demand remains as dark stores growth in question

Warehousing remains an attractive space, with demand for these sites still present. As economic headwinds grow stronger, the focus is likely to grow on prime warehouse sites, with proximity to transport networks and hubs key.

The recent purchase of a 23,000 sq. ft site in south-east London for £5 million is indicative of this trend.

The urban warehousing sector continues to attract attention as ultra-fast grocery delivery services take root on a growing scale, and as more established online food delivery companies continue to prosper.

However, a backlash against dark stores is growing, on the grounds of the noise, traffic disruption and litter that they can generate. Notably, bans and property reclassifications are stymieing the growth of this sector in Europe. Again, this may intensify the flight to quality for investors, with a focus on properties that meet location criteria and cause minimal disruption.

Senior living and residential look likely to offer stability

Another sector that may benefit from a stronger flight to quality is the senior living space. A recent study from BNP Paribas Real Estate revealed a shortfall of over 487,000 senior living housing units in the UK. The recent purchase of a supermarket site in Gloucestershire to develop a retirement and housing scheme is an indicator of this potential.

This switch in purpose from retail to housing in urban areas and high streets is a trend that could well accelerate in the wake of the recent Budgets and their likely impact on consumer spending power. For example, a pub site in West Bromwich has recently been purchased by a developer that is planning to create a site that contains 60 residential apartments as well as retail units.

Uncertainty underlines need for commercial lending expertise

Going back to a market-wide view, the rise in interest rates and the impact on spending power, both consumer and investor, are likely to have some significant consequences for the commercial property market going forward. While the uncertainty is likely to cause caution in investors, they will still be alert to opportunities, with an intensification of the flight to quality set to increasingly frame activity.

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.

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