UK commercial property transactions are at their lowest level in more than a decade
Commercial real estate transactions fell to their lowest levels in more than a decade as investors factored in higher interest rates, the prospect of a prolonged recession and the fallout from Liz Truss’ “mini” Budget.
£7 billion of transactions transacted in the last three months of last year was the lowest quarterly total since at least 2010, according to property analytics firm CoStar, which began collecting data that year. .
Investors spent £21 billion on UK commercial property in the first three months of 2022, £17 billion in the second quarter and £11 billion in the third.
Commercial property owners have suffered as interest rates rise: investors now incur much higher borrowing costs and are unwilling to pay 2021 rates.
UK commercial property prices have fallen by more than 15% since June 2022, according to an index compiled by property firm CBRE, and most analysts expect these prices to continue. decrease in the near future.
Meanwhile, many Investors has fully retreated while the market adjusts to higher prices and data from CoStar shows that the desire to trade has gradually diminished over the past 12 months.
The low investment figures for the fourth quarter are in stark contrast to the beginning of 2022, when commercial real estate agents are toasting their best start to the year since 2015 and looking forward to a period in which investors Foreign investors — especially those from Asia — can once again travel freely.
But hopes that post-Covid spending would be unleashed for the UK have gone up in smoke since Russia invaded Ukraine last February.
The war accelerated inflation around the world and encouraged central banks including the Bank of England to raise interest rates much faster than expected, as well as raising the prospect of a prolonged recession in the UK.
Of the £56 billion invested in UK commercial property in the past year, around a third was spent on offices, with Asian investors particularly active according to CoStar.
But around 80% of the £18bn investment in the office came in the first six months of the year, with some big deals on title properties done in the first few weeks of 2022.
There is also £13 billion spent on warehousing, as investors bet structural trends include the growth of e-commerce and a greater emphasis on stockpiling goods from companies experiencing shortages due to the pandemic will increase in value.
That market has been hit hard by rising rates and signs of dizzying growth by the largest e-commerce operators, such as Amazon, which is go the opposite way.
Overall, the transaction process slowed down when Liz Truss and Kwasi Kwarteng, former prime minister and prime minister, announced their “small” Budget last September.
But their tax-cut intervention sowed further uncertainty and was seen by investors as another reason to pull out.
Grant Lonsdale, director of market analysis at CoStar, said the trading process is likely to continue to slow over the next few months. However, he added, “price stability coupled with greater clarity on interest rates and the economic outlook should stimulate activity in the second half of 2023.”