Commercial Real Estate Market In United Kingdom - Growth, Trends, Covid-19 Impact, and Forecasts (2023-2028)
The United Kingdom commercial real estate market is expected to record a CAGR of approximately 5% during the forecast period. Real estate was badly hit by the COVID-19 pandemic, with a sharp decline in values across all markets and sectors. Confidence in the United Kingdom property market had already been knocked by the uncertainty concerning Brexit.
Key HighlightsThe United Kingdom logistics sector's transformative change is driven by factors, such as decarbonization, growth of e-commerce, Industry 4.0, and the need for a resilient supply chain. Greater Lincolnshire benefits from its strategic location in United Kingdom, providing large ports and distribution centers and fast multimodal access to the national and global markets. The emergence of new technologies and the rising demand from agrifood and low-carbon energy industries are some of the profitable opportunities for logistics companies.
Location can provide a competitive advantage for success in times of market turmoil and chance. Hence, large companies, such as XPO Logistics, Able, Magnavale, and Gousto, recently made a quality investment in the region's logistics area.
Over USD 21.56 billion of industrial assets were traded in 2021, an annual total that stands as the strongest year for industrial investment. This figure is 60% more than the total in 2020. Additionally, the sector accounted for 29.0% of all the United Kingdom real estate investment activity by value in 2021.
Industrial real estate remains the highest conviction asset class for investors, with annualized returns of 38.2% capital growth in the 12-months ending December 2021. This was driven by continued strength in the occupier market, which drives record rental increases and record-low vacancy. Some of the largest transactions include Blackstone and Valor’s USD 203.7 million purchase of Gemini Park in Beckton and CBRE GI’s USD 184 million acquisition at Fenny Lock in Milton Keynes in Q4 2021.
Declining Vacancy Rates and Increasing Rents of Office Spaces in LondonThere was a resurgence in demand in the Greater London and South East office market in 2021, after the weaker take-up recorded in 2020 due to lockdowns. Take-up reached 3.5 million sq. ft in 2021, which reflected a 46% and 12% increase in the take-up recorded in 2020 and 2019, respectively.
The transactional activity was only 2% below the pre-COVID-19, illustrating the healthy levels of occupier activity in the market. The Western Sector was the most active geographical region, accounting for 45% of the total take-up recorded in 2021.
The market received a confidence boost, with several large corporations committing their long-term future to the region. This included Unilever, ITV, and Intercontinental Hotels Group, which all leased over 50,000 sq. ft. in 2021.
There were 10 deals recorded over 50,000 sq. ft, which was the highest total since 2018 and the second-highest quantum in the last five years. Notable transactions in Q4 2021 included Skanska leasing 67,000 sq. ft at Leavesden Park, Watford, and EY acquiring 26,000 sq. ft at R+, Reading.
Major industry rents rose 4.3% in the first quarter of 2021. London's industrial sector is a growth engine, with prime rents up 6.9% in the first quarter of 2021. Industrial land in the southeast is one of the weaker regions, recording 3.1% rental growth. This suggests that tenant demand across the country remains strong, despite slower growth than in London, compared to 3.2% in the rest of the United Kingdom (excluding SE and East). East Midlands rents were flat for Q1-2021, making it the only region not reporting rent growth.
Key industry yields rose 12 basis points in the first quarter of 2022, bringing all-industry yields to 3.9%. Industrial stocks in London and South East returned 3.4% and 3.8%, respectively, below the industry average. Prime yields in the rest of the United Kingdom (excluding SE and East) rose 17 basis points to 4.6% in Q1-2022.
Competitive LandscapeThe commercial real estate market in United Kingdom is fragmented due to a low level of market share concentration. The industry is highly competitive. The United Kingdom property market is extremely attractive to investors at the domestic and international levels.
Property tech is a growing sector in the country, as it is easier to invest, buy, and sell than the usual process. Some players in the market are Land Securities Group PLC, Segro PLC, British Land, Derwent London, and Hammerson.
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