19 Jan 23 by Alan Treloar
2022 is well behind us now but what kind of a year was it for the commercial property market 2022 at Vickery Holman and what lies ahead?
Commercial Property Market 2022 and 2023
2021 generally saw a bounce back following the depths of the pandemic and we thought 2022 was going to build on that activity but global issues, in particular the invasion of Ukraine and then, as the year went on, the growing cost of living crisis, inflation and interest rates increasing all combined to make 2022 a trickier year than we might have expected.
What we saw across all our commercial offices was that the industrial sector held up well with rentals still being recorded at strong levels and very good prices being paid for freeholds. Tenants and buyers were increasingly drawn to new and good quality second hand stock as they became more conscious of energy performance levels. Most shed occupiers rode out the pandemic well and we see the popularity of industrial stock being maintained in 2023.
There may be a few more opportunities with industrial properties coming on to the market as businesses respond to the headwind factors but demand should be strong enough to ensure deals continue to happen in the commercial property market.
The retail sector held up relatively well in 2022 with enough demand to see lettings taking place in all locations whether prime city centre, neighbourhoods or our sought after coastal and country towns. Retail rents have been adjusting for several years (not just due to Covid) and this has helped with tenant demand. The general reduction in Rateable Values for retail premises which will come into effect in April is welcome for occupiers.
The pressure on disposable income may see a tough year ahead on the high street but several retailers reported good trade from their shops in the run up to Christmas.
Freehold town centre retail with substantial upper parts will continue to offer buyers good value for money, deriving income from the ground floor retail and creating more value from residential conversion of the uppers, especially in towns with strong residential values.
We saw a further settling down of the office sector as occupiers saw mainly hybrid working patterns becoming the norm – meaning the traditional office still has a place. In our experience there was not a great deal of movement in the sector in 2022 as most occupiers focussed on their businesses rather than relocation. This was also not helped by a general lack of high-quality office space meaning that occupiers weren’t tempted to trade up in 2022.
If the first half of 2023 is challenging, then we can see the office market remaining relatively quiet but we are also hearing from occupiers who are looking well beyond the next few months.
As ever – even if interest rates are higher than we have become accustomed to, there will always be buyers who can find money to purchase properties that rarely come on to the market or offer a particular “angle” – we don’t see that changing in 2023.
Some of the heat has gone from the upper echelons of the investment market but we are seeing yields less affected in more secondary stock where returns of 7% plus continue to appeal to buyers as they offer sufficient headroom above bank rates and the long term growth potential which is so often the case with commercial and mixed use property investments.
The acid test is going to be to review the situation at the end of Q1 of 2023. Vickery Holman has an online market update scheduled for late March so do let us know if you’re interested in joining us.