Commercial property investors and landlords are repositioning their portfolios by selling up retail and office space and opting for student campuses and warehousing instead.
Global investment firm Blackstone are just one of many companies who have gone down this route in recent months, seeing how the pandemic has altered the commercial and residential property outlook. In terms of the latter, city housing is being spurned in favour of villages and greener spaces or coastal retreats. In commercial property terms, it’s all about students – both in terms of accommodation and research & development facilities in particular (ie high-tech life sciences campuses). Warehouses are also faring well with the increase in logistics companies.
As one analyst put it, commercial property interests have switched from retail to “beds, meds and sheds” — residential housing, healthcare and life science property and warehouses.
That’s because, in 2010, retail outlets and offices made up 70% of commercial property sales. Today it’s only around 35%, according to Real Capital Analytics.
‘Golden triangle of Oxford, Cambridge and London’
Earlier this year a 40% stake in Magdalen College’s Oxford Science Park was offered at £100 million – more than five times what the College paid five years ago. The ‘sweet spot’ according to investors in the ‘golden triangle’ between Oxford, Cambridge and London. Around £2.4bn was invested in life sciences property there last year and there’s still room for growth say analysts. Most big investors want to get in from the off though, saying the big money is in building new campuses and labs.
Warehouse shares up 16% post-pandemic
An increase in online shopping – particular during the pandemic – has led to a huge demand for warehouse space by distribution companies. Warehouse developer Segro shares went up 16% recently. Office supplier British Land and Land Securities have lost around 30% of their share price since the pandemic, while shares for shopping centre supremo Hammerson are down by 75%.
Buy to let landlords ‘growing in confidence’
The sector may have been hit by a raft of tough legislation in recent years, but the buy to let market is still strong. And it’s going from strength to strength, if the last quarterly report by the National Residential Landlord Association’s quarterly Landlord Confidence Index is anything to go by.
This is backed up by a report commissioned by The Deposit Protection Service which found that more than one third (34%) of existing UK landlords had – or were about to – increase their property portfolio. All said they were encouraged by recent price growth.
House values increase 20% in five years
Records by the Office for National Statistics show the value of the average house in the UK has grown by more than 20% over the past five years (from June 2016 to March 2021). That’s from £212,887 to £256,405. In 1991, the average UK house value was just £57,000.
The rental market too is flourishing, with a 4% increase year on year in May this year, according to the Homelet Rental Index. That’s an average rent in the UK of £997 pcm.