Signs of life return to commercial property

Sector has been harmed by the coronavirus lockdown - but sales are beginning to pick up

Shoppers return to Westfield, east London, following the coronavirus lockdown
Shoppers return to Westfield, east London, following the coronavirus lockdown Credit: Isabel Infantes /AFP

The commercial property market is beginning to show signs of stabilising amid the coronavirus crisis, according to the estate agent Savills. 

Investors splashed out £1.3bn on commercial property in the UK during June, a 42pc increase on the £755m spent in May - although still down 54pc on the £2.8bn spent in June 2019. 

There are also signs yields may harden - reflecting a stronger market - on West End offices as well as industrial and distribution properties. 

The commercial property market has been hammered by coronavirus, with retail tenants forced to close their businesses during lockdown and uncertainty over whether office tenants will continue to want as much space

The second quarter of 2020 was the weakest quarter on record for UK investment, while sales during the first half of the year are thought to be 43pc below the five-year average.

From heights of £8.4bn in February, sales slumped to £3.5bn in March and then £859m in April. Equivalent figures for 2019 were £3.2bn, £4.8bn and £4bn respectively.

But Savills said it hoped a corner had now been turned. The all-sector prime commercial property yield remained stable at 5.21pc during June. 

James Gulliford, joint head of UK investment at Savills, said: “There’s some evidence that we may have passed the nadir of this cycle in terms of investment volumes in May. This of course does not change the overall story of Q2 2020 being the weakest quarter on record for UK investment activity.”

Mat Oakley, head of UK and European commercial research at Savills, added: “The shape of the UK economic recovery is increasingly looking ‘tick-shaped’, starting with strong quarter-on-quarter growth in Q3, though with 2021 not showing a recovery of the magnitude of the fall seen in 2020.

"While a revival in GDP growth is imminent, unemployment is not expected to return to 2019 levels at any point in the next five years.”