While signs of recovery remain visible, heading towards Q4, the commercial property market has lost some of its momentum. Nevertheless, there are good opportunities for shrewd investors, with key trends to take advantage of.

The summer is traditionally a quieter time for commercial property, but this year, risks related to micro- and macro-economic uncertainty, rising occupier costs and legislative reforms, in particular linked to residential landlords, have combined to keep the market broadly flat.

That said, the decision to cut interest rates in August, now at their lowest since March 2023, is a fillip to the sector and could spark a healthier last quarter of the year. With the summer now in the rear-view mirror and Q4 approaching, there are some pivotal movements in the market that will help guide investors.

What to target in the maturing industrial/warehousing space?

First of all, there’s no change to what is driving the market – industrial and warehousing. The sector continues to mature, with trends for optimisation and future-proofing supply chains still to the fore, but with entrenched online shopping and e-commerce components, the outlook remains healthy.

How retail is helping residential and what this means for both

Residential is another cornerstone. The interest rate cut will help here, with the marked change in government housebuilding policy also continuing to have a positive impact. Interesting, residential may also benefit from key developments in retail, and in particular the much beleaguered high street space.

There has been talk in some quarters of a high street revival, however, such statement warrant a closer look. Interestingly, the trend for converting retail into residential units continues to grow, with semi-commercial development (a mixture of retail and residential use) an emerging space within this. Negotiating planning requirements, changing usage, etc. is far from easy, but there is clearly potential here.

Returning to retail, it continues to perform below warehousing/industrial and residential, reflecting the ongoing impact on spending power of domestic and global economic uncertainty. A key trend, and one seeming set to get only more important, is the preference for prime retail property, with the gap between this subsector and secondary units forecast to widen further during the rest of the year.

Where to focus in uneven office space and the alternatives to monitor

The growing gap between prime and secondary types of property is increasingly proving a market-wide trend. This includes in office space. While positively remains around office property, sector performance is imbalanced, both in terms of geography and property type. London is seeing a healthier market while investors are honing in more and more on prime office space (high-quality, sustainable, etc.).

Away from the traditional market behemoths, the alternative property sector continues to offer good opportunities for savvy investors. Data centres remain a hot spot, with activity increasingly focused on London thanks to the capital’s power capacity and established ecosystem. Purpose-built student accommodation and life sciences are other alternatives offering good deals.

Financing deals and why the right commercial finance provider is vital

With the year almost three quarters done, the commercial property market is in an interesting place. Uncertainty continues to be a key characteristic – for all the talk of revival, the market remains largely subdued, a reflection of general economic conditions. Whether the August interest rate cut provides a big enough jolt remains to be seen.

As such, accessing funding remains critical to taking the opportunities on offer in the current climate. Against a background coloured largely by uncertainty and with traditional sectors performing unevenly and alternative spaces continuing to have a notable role, traditional lenders remain cautious, leaving the door open for the growth of alternative finance use. In such an environment, the choice of commercial loan and mortgage provider has rarely been so 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.