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Where should commercial property investors look in H2?

New industry figures show just how tough the last six months have been for the commercial property market. But, at the same time, there is a growing consensus that the worst may be over. If an upturn lies ahead, where should investors put their money?

So far this year is proving a highly challenging time for the commercial property market, with all sectors affected by some fearsome headwinds, with rising interest rates and falling spending power having a particularly notable impact.

Even the market powerhouse – the industrial sector – has toiled, with key players adjusting spending on warehousing and focusing on optimising existing structure, not least as the cost-of-living crisis affects consumer online shopping activity.

According to new data from Sirius Property Finance, investment in the industrial sector fell by 55%, with £2.9 billion spent in the last six months, compared to £6.9 billion in the six months before that. Investment in office space fell by a similar level, with the dip particularly strong outside London, with retail and leisure also witnessing a steep fall off in spending.

What property deals to target in a recovering market

However, amid the gloom, there is a feeling that market recovery is in sight. It remains to be seen how long this takes, and it may take a while, but such sentiment is welcome news. In terms of investment, investors will have to continue to tread carefully, but there are some clear opportunities for savvy spenders.

While warehousing has taken a hit of late and it is unlikely to burn as brightly as it did, the sector is still likely to be a key growth driver. Properties that can help companies meet ESG objectives, especially with regard to green credentials, will be in demand.

With regard to office space, it comes as no surprise that this sector continues to struggle, with a working-at-home culture firmly entrenched, although this picture may be changing as clamour grows for a return to the office. Looking ahead, prime office is likely to the source of the vast majority of forward momentum – in particular in London and other major cities. Demand is set to be greatest for contemporary spaces, with an eco-friendly profile essential to attracting interest.

Looking at retail, mixed use space will be key to positive development in this space, which has been especially subdued in 2023. A more experiential approach to physical retail is set to be key trend – in terms of the offer of something that online stores can’t – with such activity gaining momentum and delivering results in the US and Europe.

Away from the traditional property sectors, other spaces worth looking at includes aged-care facilities, life sciences, data centres and student housing, all of which are set to display notable resilience going forward, not least as key growth drivers are better protected against market headwinds.

Investing in H2 2023 and your commercial property lender

As the end of Q2 draws closer, as widely predicted, the commercial property market is beset by some serious headwinds. However, many are seeing light at the end of tunnel and there are good deals to be had for switched-on investors.

Integral to taking these opportunities in current market conditions is access to capital. And this makes the right choice of commercial loan and mortgage lender crucial.

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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