NAEA Propertymark Commercial agents say recent political and economic turmoil as well as economic outlooks have dampened expectations of capital value, rental value, and investment yield growth across all sectors compared to last quarter
The land and yards sector is seen as best placed to weather the pressures of inflation and interest rate rises with capital values, rental levels and investment yields all expected to rise over the next year by most agents caused by a continued lack of stock.
For similar reasons, the industrial sector is next best placed to weather current turbulence.
The worst outlook for the next year remains in the pubs and restaurants sector. With cost-of-living concerns, energy prices and interest rate rises affecting tenants’ bottom lines, combined with liquidations leading to rising supply, rental levels are expected to decline along with capital values and investment yields.
Interest rate rises are the biggest concern for agents at the moment, with many finding investors bargaining hard, even on deals already agreed. Agents are naturally seeing a rise in the proportion of cash buyers as budgets are squeezed for those highly leveraged.
Anthony Meadowcroft, president NAEA Commercial, said: “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.”
