New figures have shown that there has been a surge in demand for commercial property in the UK. Property expert Simon Morris discusses what this could mean for the future of this lucrative property investment class.
The profitability of commercial property investment
The BBC reported at the start of 2015 that UK’s economy grew 2.6% in 2014. This was its fastest rate of expansion since 2007. This means that the UK is now a more desirable place to set up a business than it has been since the onset of the economic crash.
This has benefitted the country’s commercial property sector. Figures show that heightened demand has seen returns for commercial property soar above the 10% mark in 2013 and 2014. Andy Brunner, investment strategist at Morningstar OBSR, was quoted by Investors Chronicle suggesting that returns could also eclipse 10% in 2015.
Demand for commercial property rises 46%
Brunner’s forecast may have been validated by new figures which show that demand for commercial property has soared. Property Wire has reported that the latest commercial market report from the Royal Institution of Chartered Surveyors (RICS) found that demand for UK commercial property rose 46% in the first quarter of 2015.
This means that occupier activity in the commercial property sector has now increased to its highest level since 1998. The survey noted a particular increase in overseas buyer interest in UK commercial property. It ticked up by a margin of 34% in comparison to 17% in the final quarter of last year.
Availability of commercial property falls
In contrast, availability of commercial property in the UK has fallen. The report found that 39% more surveyors noted that there were less commercial properties on the market in the first quarter of this year than in the fourth quarter of the last.
RICS has noted that these conditions have had a powerful impact on rental expectations in the UK’s commercial property sector. The Institution suggested that heightened demand coupled with tightened availability has seen rental expectations on commercial property rise to their highest headline reading since 1998.
Research before investing in commercial property
The implications of these statistics are clear to Simon Morris. They suggest that investors may be able to accrue greater rental revenue by ploughing capital into the UK’s commercial property sector. In contrast, tightened availability may mean that it’s harder to enter this lucrative sector.
This is why the property specialist has suggested that investors need to research the commercial property market in depth before they utilise it as an investment strategy. Read Simon Morris’ guide to property investment in 2015 to learn more.