London’s volatile and expensive private lettings market is drawing investors into commercial property, according to fresh research in the £1.8 trillion sector.
Leases for shops and offices can often be longer and the turnover of tenants is lower, making the commercial property look appealing a difficult time for the housing market. Landlords and tenants are adjusting to the end of cheap mortgages, after 14 consecutive Bank of England rate hikes took interest rates to 5.25% from 0.25% in December 2021.
A mix of residential and commercial property can help offset some of the risk for in the property market. Meanwhile, demand for office and shop space is on the up, adding to the appeal.
Findings from the specialist financial services firm Shawbrook – seen exclusively by the Standard – show almost a third of landlords in the capital intending to add to their portfolio are considering making the switch.
Retail space is in the lead, with 39% of those looking at commercial property thinking of buying larger shops. That’s narrowly ahead of those looking at smaller shops, at 38%. Office space is just behind that at 37%, with industrial space behind at 29%.
As the appeal of commercial property investment rises, investors already in the industry are planning to expand, with over a third considering upping their portfolios.
The rise of hybrid working is also playing a role, increasing demand for office space, with a rise in businesses wanting premises outside traditional centres, even as the return to work gathers pace.
Emma Cox, head of real estate at Shawbrook, said: “As cities and towns adapt to changing post-pandemic dynamics, people are once again frequenting local businesses and returning to offices.
“When compared to residential properties, commercial properties often feature longer term leases at higher rental yields. Commercial property is a diverse market including a range of industrial, office and retail properties with different dynamics.”
The research also found that landlords were keen to use commercial property as chance to support the local community. The investors keen to buy into shops saw the move as a chance to help the evolution of the high street after the pandemic, with a rise in tenancies from local, independent, and experiential stores.
“Landlords could become the unsung heroes of the high street, with many planning to support their local communities by injecting new life into commercial properties and retail units, added Cox.
