What to Expect from the UK Commercial Property Market in 2023
It is set to be an eventful year for commercial real estate. With a weakened economy, there are bound to be challenges, along with legislative changes and reforms to consider. Despite this, there are lucrative opportunities to be had, particularly in certain sectors.
Here we explore the key trends and what to expect from the UK commercial property market this year.
Reduced revenue potential and spending in an uncertain economy
A recent Deloitte survey collected revenue data from the Chief Financial Officers of prestigious investment companies and commercial real estate owners. The data showed that expected revenue in 2023 was ambiguous. 12% of those surveyed expected no changes in revenue, whilst 48% expected revenue decreases, and 40% anticipated increases. Off the back of this uncertainty, 33% plan to cut costs in 2023, where only 6% had such plans the year before.
It is evident that factors such as recession, escalating interest rates and higher levels of inflation have all negatively impacted growth potential in the commercial property market. These implications mean that the climate has become more difficult for property, so we might expect to see reduced investment in 2023. That said, experts are predicting that the recession should pass quickly, seeing the beginning of a more promising economy towards the end of this year.
Investors will need to plan carefully for when and where is best to put their money this year. The location and sector are likely to play a significant role in how profitable a particular property investment may be, so it is essential to thoroughly do one’s research before investing. The industrial sector in particular is expected to see continued strong growth in 2023 (see below).
The industrial real estate sector continues to boom
Despite rising inflation and interest rates, the industrial real estate industry continues to perform well, and demand is only growing. Such trends can be explained by the consistently expanding e-commerce sector, meaning that the need for industrial buildings, such as warehouses, is expected to grow throughout 2023 and beyond.
So, for those looking to invest in property this year, the industrial sector is well worth exploring.
Changes to REIT regulations
Real estate investment trust (REIT) regulations are set to change in April 2023. From this date onward, the requirement to own a minimum of three properties will be scrapped, providing that the individual owns a commercial property that is valued at a minimum of £20 million.
This change means that more people may be able to benefit from the tax advantages that REITs offer, which can offer 20% or lower effective tax rates, depending on the circumstances.
Affordable housing and renters’ reforms
Back in June 2022 the government published a white paper entitled ‘A Fairer Private Rented Sector’ proposing a new deal to ensure fairness and affordability to renters.
As the demand for affordable housing increases, and with rental reforms likely in the near future, landlords will need to look at how they can meet any new requirements and whether their properties will remain profitable. It is likely this may feed the existing trend of private landlords selling up, leading to a reduction in the overall stock of private rental properties.
Speak to our commercial property experts
Navigating the commercial property market is not always easy, and often, investors and real estate owners may require legal support. Longmores’ commercial and investment property solicitors have extensive experience, and can ensure that you have the legal support you need, no matter which type of commercial investment project you are approaching.
Our experts can offer unbiased and practical advice on your projects, ensuring that you make well informed decisions. We can provide assistance for clients through every stage of a property investment, including dealing with regulatory matters, such as ESG regulations.
To discuss how we can help with your commercial property, please get in touch, and we will be happy to advise.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.