Demand for commercial space is growing at the fastest rate in five years according to a recent RICS report. The report says that industrial space is leading the charge, demonstrating healthy demand throughout the pandemic, with office and some retail space now also seeing a recovery.
The trend is also reflected in an upturn in the residential property market in London, a market which was the hardest hit of any part of the country during the pandemic.
The second quarter of 2021 appears to have been the turning point for commercial property with a growth rate not seen in five years, according to the Royal Institution of Chartered Surveyors’ (RICS) report.
Confidence appears to be returning across the board with commercial property. Respondents to the survey conducted by RICS said they sensed that conditions in the market generally indicate a steady upturn of the like not seen for several years, albeit from a low base.
Meanwhile, in the residential market in London, property agency Chestertons claims a 19% increase in the demand for rental properties across the capital, while the supply of available and suitable properties has decreased by an alarming 42% as compared to July 2020.
The demand – supply rebalancing as a consequence is having its affect on residential rental values with Chesterton’s figures showing a 63% decline in the number of rent reductions in July 2021 compared to July 2020.
Further indications that supply and demand are beginning to balance out is the reduction in tenants leaving or planning to leave. Comparing July this year to 2020, Chestertons has found that 22% fewer tenants were terminating their rental agreements. On the other hand, the number of tenants moving into their new home was up by 16% during the same time period.
There are some areas of London’s residential property market even seeing rent increases since this time last year including Hyde Park (31%), St. John’s Wood (27%) and Fulham (21%).
Richard Davies, head of lettings at Chestertons, has said
“Whilst there were deals to be had during the height of the pandemic and the first quarter of this year, tenants are now entering a much more competitive market. Since the easing of lockdown restrictions, we have been witnessing an evident surge in tenant enquiries across London. This has resulted in the number of available properties dropping to pre-pandemic levels, which will inevitably lead to an increase in rents.
“Tenants who are eager to still find more property for their money, may wish to consider the locations of Canary Wharf, Kentish Town, Bermondsey and Pimlico where rents are still comparably low.”
One commercial agency’s experience
One indication of this trend is London based property agency Henshall & Partners of Southwark reporting “huge demand” for shell and core commercial units. The agency reports that over the past past weeks they have let over £450,000 per annum exclusive of other costs, and sold over £5,000,000 worth of commercial space.
Henshall & Partners conclude that the increase in demand for commercials units, which have
been sold and let across London’s fringe markets, is an indication of a return to normal life and
that the uptick in business post the COVID-19 restrictions is here to stay.
The lifting of most of the restrictions in July or “Freedom Day” to some, enabled most businesses to return to operating at full capacity as before the pandemic. One strong indication of this is the ONS statistics showing that job vacancies in the food service industry have reached 75.4% over the past three months.
Chris Henshall, Managing Director at Henshall & Partners says:
“Over the past weeks, we have experienced a notable increase in demand for shell and core units, both on the sale and rental side. Many of the units we have let or sold have been to office occupiers ready to get back to work and retail outlets seeing optimism from increased footfall.
“The role out of the COVID-19 vaccine and the easing of restrictions for industries has undoubtedly boosted confidence and business for shops, bars, restaurants, and cafes and we anticipate sustained demand over the next few months as normal life returns.”
Henshall’s recent string of deals have been across London include two restaurants
in SE9 and SE1 (German Donor Kebab and The Last Talisman) let for £56,000pax and
£120,000pax respectively, a high-end barber on Tooley Street, SE1 which let for
£35,0000pax, and industrial bakery/ coffee roastery in Forest Hill, SE23 let for £60,000pax
and a PT studio in Highams Park, E4 which let for £20,000pax.
Notable unit sales include almost 10,000sqft in Tottenham, N17 with one unit sold to Nisa and the other to an accountancy business for £1,650,000 in total and a unit in Hornsey N8 to an investor selling for £330,000. They have also just launched a brand-new restaurant and bar property set
within the grounds of an old fire station in Borough SE1.
London’s office market
One trend that is evident in London’s office market is that companies are taking shorter leases and requiring less space given the uncertainty of the changes to long-term working patterns following the Covid pandemic.
However, despite the capital still experiencing high levels of home working – only around one third of the UK’s workforce has fully returned to the office, compared to European countries and the US with up to three-quarters back in the office – demand for office space remains strong.
While the overall UK economy has decreased in size during Covid, experts are still predicting a strong recovery with London and regional property markets expected to see healthy rental growth beyond the pandemic.
There is still healthy demand for flexible, Grade A office space in London which is attracting investors to the market, but the long-term effects of the structural and behavioural changes brought on by Covid have yet to pan-out.