Commercial outlook - Q1 2023

According to the latest report from NAEA Propertymark, commercial agents are showing a more positive outlook across various sectors compared to the previous quarter.

The UK economy's performance has exceeded expectations, and there is a sense of resettling after the Truss/Kwarteng budget, contributing to improved expectations among agents.

Land and Yards Sector Positioned to Handle Inflation Pressures

Amid concerns about inflation and potential interest rate hikes, the land and yards sector is perceived as best positioned to weather these pressures. Most agents anticipate rises in capital values, rental levels, and investment yields over the next year, primarily due to a persistent lack of available properties in the market.

Pubs and Restaurants Sector Faces Challenges

Conversely, the pubs and restaurants sector holds the most concerning outlook for the coming year. Rising cost-of-living, energy prices, and interest rates are affecting tenants' profitability, while liquidations contribute to an increase in property supply. As a result, rental levels, capital values, and investment yields are all expected to decline. However, there has been a slight improvement in sentiment within this sector, driven by better-than-anticipated economic outcomes overall.

Key Trends to Monitor

The last quarter highlighted several significant trends that warrant careful observation in the coming year. First, there is a noticeable trend of repurposing pubs and offices into residential properties. With reduced demand for large office spaces since the pandemic, this conversion offers a way to increase returns and potentially address the UK's housing crisis.

Secondly, higher lending costs are predicted to limit growth, impacting both property prices and deal volumes. This could result in a shift towards more cash purchases in the commercial property market.

Lastly, there is an increasing number of shop closures, signaling potential shifts in the retail landscape. As the business landscape evolves, commercial agents will closely monitor these trends to make informed decisions and provide valuable insights to their clients.

Read the full report.