Although the retail sector began to see signs of post-COVID recovery by the end of 2021, we remained cautious of further uncertainty. As we reach the mid-point of 2022, economic and political headwinds have compounded the challenges for occupiers, investors and consumers alike. We take a look at a few current trends in the GB commercial property market right now, with the help of the latest data.
The industrial sector has seen the strongest performance of late but it is also experiencing insufficient supply to cope with unprecedented demand. According to the Q1 2022 UK Commercial Property Market Survey by RICS, tenant demand for industrial space landed at a net balance of +60% in the first quarter of the year, the strongest pick-up in tenant demand across commercial sectors. High-quality logistics space is in high demand as online sales and inventory stockholding climb, pushing rents and capital values higher. Coupled with the long lead times for the construction and development of large units, this is a challenging time in terms of supply but the level of demand supports speculative development activity.
Although overall demand for office space is relatively sparse, confidence in the office market is picking up; some do want to return to the office, albeit not on a traditional Monday-Friday schedule and not usually at the same size or occupancy level. Rental growth in central London’s prime office market is expected to outpace most other regions as prime rents edge higher in London and the South. London is still generally seen as a safe haven for investment despite geopolitical issues. Supply is limited among high-grade vacant office sites, although new schemes could emerge where planning conditions are not too limiting. Grade A occupiers have taken up new supply, releasing older stock which could be converted perhaps for residential or mixed-use. 87% of RICS survey respondents reported seeing office space being repurposed for other uses.
As highlighted in our latest report, recovery has started to set in across the retail and leisure sector, although this recovery is polarised across subsectors of the market. Prime retail has been beset by challenges pre- and post-pandemic and has not yet seen the level of recovery experienced within prime out-of-town and secondary markets.
Market towns and suburban locations have performed better, and there has been strong demand for secondary store units to lease. Independent businesses are now increasingly able to access well-located pitches they may not have been able to access previously, with more affordable space available on more flexible rental terms. There has been greater resilience in leisure and hospitality than in retail. Our 2021 report found that the GB leisure sector moved from a net loss of -2,640 units in 2020 to just -52 over the year; with an improvement of 2,588 units — this was the biggest recovery of any classification type. Bars, cafés and restaurant & bar concepts fared especially well, with net increases of 199, 234 and 184 units respectively.
Reoccupation may be a smoother process now, thanks to the Class E planning category introduced in late 2020, which amalgamates several previously separate asset classes and removes the need for permission to change category between these. In combination with the recently-announced rule requiring landlords to let out stores vacant for over six months under the Levelling Up and Regeneration Bill, these should facilitate filling high street voids.
Intermingling factors including rising inflation and living costs, increased construction costs and continuing concerns around the invasion of Ukraine and Brexit continue to affect commercial property as prices rise and disposable income drops on the consumer side. The full impact of this maelstrom of economic pressure on the market remains to be seen but has already caused concern and could prove a hindrance to investment and transactions. However, demand has not disappeared entirely, nor has investor and occupier appetite. Retail and leisure data from 2021 shows that many have taken away key lessons from the pandemic and have taken steps to adapt, which could aid resilience amid continuing challenges.
For more information on how the Local Data Company’s data, insight and analysis helps power stronger location strategy, click here to read about our work with British Land. To discuss how our projects can help you achieve your business objectives, contact Business Development Manager Katie Girdwood at katie.girdwood@localdatacompany.com.