Commercial Property Market Review – February 2022

24th February 2022

Upbeat mood for regional office activity The regional office investment market remains upbeat, according to the latest quarterly update from Avison Young, after office demand across the ‘Big Nine’ returned to ‘normal’ activity in H2 2021. A strong second half brought the year’s total take-up across the Big Nine cities to 8.1 million sq. ft, only 5% below the ten-year average. Volumes for the Big Nine office markets, meanwhile, recovered to £2.6bn, 8% above the ten-year average. Although the total number of deals slowed in Q4 2021, NatWest acquired One Hardman Boulevard in Manchester for £292m, the largest deal of the year. Prime yields for most cities were unchanged in the final quarter, with an average of 5.36%. The MSCI quarterly index did, however, show the yield gap between prime and secondary property widening, highlighting a shift towards the best quality assets. Mark Williams, Principal and Managing Director of Regional Investment at Avison Young commented, “Well-located, good quality assets with a strong tenant base continue to receive good levels of interest, particularly those that meet net zero carbon investment criteria and fulfil expectations for positive rental growth.” Rosy picture for investment expectations UK real estate professionals reported positive investment trend movements during Q4, in line with a global uplift in sentiment observed in the latest Royal Institution of Chartered Surveyors (RICS) Global Commercial Property Monitor (GCPM). The GCPM showed UK capital value expectations for the next year rising across all sectors. Top of the list is the industrial sector; a net balance of +84% of respondents expect prime industrial values to increase. Prime office value expectations also rose, with a net balance of +24% anticipating an increase. With work-from-home restrictions now lifted, two-thirds of respondents believe an office is still essential to successful operations. At the same time, 76% of contributors noted rising demand for flexible and local workspaces. Tarrant Parsons, RICS Economist, commented, “Strength across the UK industrial/logistics market shows no sign of abating, with capital value expectations for the year ahead posting a fresh all-time high across the sector during Q4… sentiment appears to have largely weathered the uncertainty brought on by the rapid spread of the Omicron variant in recent weeks.” Industrials and retail warehousing are star Scottish performers Industrial property and retail warehousing have surpassed offices in annual volumes for the first time since 2011, with combined investments of £541m, figures released by Knight Frank have revealed. The pair contributed nearly a third of the year’s total investments, a 45% increase on £374m in 2020. Overall, investments in Scottish commercial property reached £1.7bn in 2021, above the £1.4bn recorded in 2020. Glasgow led the way with £475m, ahead of Edinburgh (£429m) and Aberdeen (£54m). Knight Frank’s Alasdair Steele highlighted the “almost insatiable appetite for retail warehousing and industrial property driven by changes to people’s shopping habits”, adding that this “only looks likely to continue in 2022.”
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