Despite facing inflationary pressures and mortgage market volatility over the past year, the UK commercial property sector shows signs of resilience and optimism for growth in 2024.
According to a nationwide report from mortgage lender Together, 34% of buy-to-let landlords are planning to expand their portfolios in the next 12 months, indicating a rebound from recent market cautiousness.
The upcoming report, ‘Opportunities and Outlook; the future of commercial property,’ authored by economist Rob Thomas, suggests a positive trajectory for the sector in the next three to five years. While 44% of survey respondents are focusing on de-risking and downsizing their portfolios, and 14% are exiting the market, a significant portion remains committed to growth, especially with inflation rates returning to below 5% in Q4 2023.
The study reveals an encouraging trend, with 58% of respondents recommending investment in the UK commercial property market. This optimism is further underscored by the fact that 42% of landlords reported increased revenue in the last 12 months.
Regionally, landlords in London, the West Midlands, and the Northwest of England are particularly keen on acquiring more properties. Interestingly, 10% of respondents were influenced by social media and property influencers, highlighting the impact of digital platforms on investment decisions.
The role of specialist lenders is increasingly crucial, with 42% of landlords preferring to use specialist financing over mainstream options for commercial property investments in the coming year. The preference for specialist lenders stems from their willingness to take on greater risk, offer larger loans, and support entrepreneurial ventures. Fast service and excellent customer support were also cited as key factors.
However, government support remains a vital component for the sector’s growth, particularly in addressing the current property stock shortage and facilitating development plans. Calls for addressing the construction industry’s labor shortage and reviewing rising costs for materials and labor are among the top concerns for property professionals.
Chris Baguley, group channel development director at Together, said: “The short, sharp shock in interest rates since the Covid years triggered some cautiousness in the commercial market while investors were trying to predict where the peak would be.
“With rates settling, while there is still an overall flattening; activity is returning as the sector reacclimatises to the new environment. At Together, we are still funding more than a thousand completions a month, highlighting the underlying appetite in the market.
“What continues to be apparent is the clear optimism and enduring health of the commercial sector.
“The winners of 2024 and beyond will be those who are able to seek out new opportunities, spot where best to create value and use the right financing to capitalise on emerging growth sectors.”
Rob Thomas, economist and principal researcher at the Intermediary Mortgage Lenders Association (IMLA) said: “The improving outlook we can see in our macroeconomic forecast, coupled with supportive structural factors such as rising population and constrained supply due mainly to planning constraints, allows for a recovery in property prices and markets from 2025, picking up momentum from 2026 onwards.
“This in turn supports a recovery in lending to these markets despite what has been a tougher financial environment.”
