In November, NAEA Propertymark Commercial agents reported a worsening outlook in all sectors compared to last quarter. Recent political and economic turmoil as well as economic outlooks have dampened expectations of capital value, rental value, and investment yield growth.
A lack of stock
In our Q3 survey, member agents reported having concerns about a lack of commercial stock. In the Q4 survey, we asked whether any sectors were particularly hard hit and the reasons for this. In line with other market observations, agents most regularly pointed to the industrial sector as that in which a lack of stock was most acute.
It is clear from our latest report that economic uncertainty and rising interest rates have begun to affect the market for commercial property sales and lettings. Cash buyers will lead when it comes to property purchases over the next year, with members already seeing a decrease in highly financed investors purchasing property. Our members have highlighted once again a lack of supply in the commercial sector as a whole. This is most pronounced in the industrial sector and has been caused by high demand, a lack of speculative building, and developers chasing profits in the residential sector to the detriment of commercial.
At the same time, members are expecting a rise in stock across almost all sectors in the coming year. Not all sites are likely to be re-used in line with previous planning consent as some sectors, such as pubs and restaurants, are hit harder than others. Members reported that change of use planning permission can now take over three months to obtain. Such waits are likely to leave property vacant for significant periods and put pressure on highly leveraged landlords who will struggle to pay their mortgages.
Specific concessions from landlords are likely to be necessary over the coming year to help out small businesses with rising costs and diminishing revenues. Again, pubs and restaurants and other leisure sector tenants are the most likely to need support in rent reviews. Still, securing lower rents may be difficult for some, as highly leveraged landlords are equally squeezed by rising interest rates.
Economic uncertainty
Our latest survey asked agents about the biggest issues facing commercial agents at the moment. The most common concern cited was interest rates. The rising cost of borrowing will adversely impact investors with highly leveraged portfolios. Agents are also seeing an increase in the number of buyers negotiating hard on price or attempting to renegotiate deals already agreed—when responding to our survey, 84 per cent reported deals agreed are becoming less likely to reach completion.
