[3 mins read]


There seems to have been relentless economic headwinds driving across the UK recently, from Brexit to government instability, a global pandemic to devastating wars, and inflation to a cost of living crisis. But from the chaos comes change, and often unexpected consequences.


As covid changed where we live, how we work and how we shop, Brexit impacted businesses, trade and supply chains. Both of which have made the outlook for Commercial Property pretty bright.


Why we think the CRE market is on the up:

  • The Commercial Property market has been relatively flat since 2015/2016, so there is plenty of investment firepower ready to come off the backburner
  • The mass-exodus of multinational businesses from the UK was less severe than predicted
  • The pound is still relatively weak when compared with historic averages, so international investors are still buying at a significant discount
  • Commercial property owners aren’t selling as they have nowhere else to invest, so supply is short
  • Despite steep interest rate increases, borrowing is still readily available
  • Whilst we are no longer part of the EU, European banks will still continue to lend to UK borrowers in the CRE market


Where we think the main opportunities exist:

1. Logistics and storage space

You only have to look at the painstaking decline of the British High Street to know that online shopping is ruling the retail world, and more so since the pandemic.  In 2019, the Office for National Statistics reported that online spending contributed to 18%-20% of total UK retail sales; by 2022 it was 26%, and is predicted to increase to be more than half (53%) in the next 10 years.

More online shopping means there’s big demand for storage space, or ‘sheds’ as John Lewis refers to its logistical campus of super-warehouses, aptly named Magna Parks 1-3, which occupy 1.96m sq. ft. of commercial real estate space, with another million thrown in for Waitrose for good measure. Amazon’s biggest fulfilment warehouse in Tilbury, Essex stands at 2m sq. ft.; a considerable upgrade from the first space they purchased in 1997, standing at a paltry 93,000 sq. ft.

It’s not just storage for shopping though. Supply chain problems caused by Brexit, and partly the Russo-Ukraine war, caused building material prices to soar, prompting builders/developers to bulk buy materials to achieve better pricing (and pricing certainty) from suppliers. Therefore the need for warehousing next to major ports has surged.

But if mega-sheds aren’t within your budget, there are far more attainable options for savvy Commercial Real Estate investors.  The growth of businesses that operate out of small offices and outsource their storage has been significant in recent years, so facilities for self-storage as well as light industrial warehouses are hot property.  As a developer, you can pre-sell or pre-let the space relatively easily, de-risking the lender early on, enabling you to find far cheaper funding.


2. Flexible office space

Whilst the never-ending covid-19 lockdowns were wholly miserable for many, it spurred remote working and a generation of digital nomads able to live and work from anywhere (a pretty ironic legacy!). Hence the demand for flexible office space. According to Savills research, take-up has grown incrementally each year since the pandemic, with Greater London and South East region seeing growth of 159% and 130%, respectively when compared to 2013–2017.

As well as demand, pricing has increased by 15% in H1 of 2023 compared to last year and flex operators are benefiting from reported occupancy levels of 88% in London. There are also plenty of operators looking for space, opening up significant opportunity for CRE investors.

As an operator with no experience, it’s a tricky market to get right but can be a real cash cow if you’re prepared to offer tenants more flexibility. One way to offer this is by dividing up the space and offering 12-month rolling contracts, rather than longer term contracts to one or two anchor tenants.  Although running costs are higher and the management process is more intense, the returns are higher too, and we’ve seen clients achieving 50%-100% more than the average market rent by taking this approach.

Funding can be difficult, especially with the main clearing banks, although through experience we have relationships in place with lenders who like this kind of deal.  A proven track record with the asset you’re financing, or similar assets run as flexible office space goes a long way. If you’re developing or re-furbishing, we can also look at a three- or four-year deal that allows the work to be carried out, followed by an income stabilisation period; meaning a higher rate for the work period, which decreases as revenue milestones are reached.


3. Rethinking retail space

As retail flounders in town centres, business rates rise and former High Street legends stand as empty shells, it’s clear that the future of our retail space needs dramatic a rethink.  The Government’s 2019 £1 billion Future High-Streets Fund, didn’t make much impact, especially as high-streets were further deserted during covid-19. A far more significant shift is needed in how the space is better used, and housing secretary Michael Gove announced plans in July 2023 to make it easier to convert unused retail spaces. Outdated five-storey department stores should be making way for mixed-use developments with a residential element, and smaller units that combine to offer an experience and a destination.

Savills is a great example of a company already tapping into this.  It recently secured planning permission at Queenslie Park industrial estate, for a large-scale mixed-use, 250,000 sq. ft. development project in Glasgow.  The scheme will comprise distribution, industrial, commercial, storage, retail and hospitality space, with a gross development value of £25m.  Of course, this is major money, but mixed-use retail space on all scales poses a huge opportunity going forward, and in our opinion is already one to watch for those looking for new opportunities in a dynamic Commercial Property market.



For advice on securing finance for Commercial Property development, please get in touch on 020 7846 0184 or email info@propertyfinancegroup.com


November 2023