From both personal experience and via the media we all know that since Covid, there’s been a notable change in work patterns and office usage. Here we take a look at the impact on commercial property and real estate investment.
Many city centres have been hugely impacted by those changes in work patterns – some of which are here to stay. The introduction of hybrid working hasn’t just reduced the need for large office spaces to accommodate entire workforces, it’s also significantly impacted food and drink outlets that traditionally benefited from the Friday night post-work drinks culture. Whilst some companies are now insisting that employees spend a mandated amount of time in the office it’s unlikely that there’ll be a full-on return to pre-Covid use of office space.
Traditional office buildings are being repurposed into mixed-use spaces. Often encompassing office, residential, retail and recreational spaces in one location. Where office space is included, it needs to be tech-enabled if it’s going to compete in what in some areas is a saturated market. Office space needs to be calibrated to facilitate those new ways of working with better secure connectivity between not just offices but also with homes. After all, it’s not just employees who are likely to be hybrid working, it’s potentially also clients.
LOCATION, LOCATION, LOCATION
Add to this there’s still the debate around location. Is the city or suburb better? There’s always tended to be more cost associated with high premium city centre locations, in part due to the prestige. But being based on the outskirts of a city can bring additional facilities. Car parking is one of them. But as more companies embrace sustainability and the demands for ESG reporting there is an argument that public transport connectivity should be a priority which swings things back to city centre locations.
As office use is still stabilising, over recent years it’s been noticeable that office and retail values have significantly reduced with the shift in office space demands. Couple this with higher interest rates, the market has seen a significant downturn in valuations, reduced transactions and in some instances an inability to sell stock.
RISKY BUSINESS
In the years leading up to the pandemic, the UK commercial property market experienced strong growth. The robust economic conditions and high investor confidence meant property and real estate were of interest to investors keen to benefit from relatively quick high financial rewards. Today there’s a much bigger set of potential risks linked to property and real estate deals.
To reduce investment risk, consider these strategies:
- Research and Analysis: Start with thorough due diligence. Look into current market trends, economic indicators, and future projections. It’s also crucial to understand location-specific risks, like demographic shifts or local government policy changes.
- Diversification: Spread your investments across different property types (retail, office, industrial) and geographical locations. This way, if one sector or area faces challenges, your entire portfolio isn’t impacted as heavily.
- Smart Financial Planning: Secure favourable loan terms and maintain a healthy loan-to-value ratio. Keep enough cash reserves for unexpected expenses or vacancies. Good financial planning helps manage interest rate changes and debt responsibly.
- Proactive Property Management: Actively manage your properties by keeping up with maintenance, screening tenants well, and managing leases efficiently. This reduces tenant turnover and maintains property value.
- Insurance and Legal Compliance: Comprehensive insurance, including property and liability coverage, is essential. Ensure your properties comply with all legal and regulatory standards to avoid costly legal issues.
- Sustainability and Environmental Compliance: With growing environmental concerns, consider the sustainability of your properties. Investing in green technologies and adhering to environmental regulations can make your properties more attractive to eco-conscious tenants.
Effective risk management in commercial property investment involves a combination of solid market research, sound financial strategies and proactive management.
By understanding and addressing these risks, you can protect your investments and seize opportunities in the commercial real estate market. Staying informed and adaptable is key as the industry evolves.
CREATING UNSHAKEABLE FOUNDATIONS
It’s important to work with a property specialist who understands the complexities at every stage. At CP, we ensure that an experienced senior advisor serves as a central contact point for clients, avoiding the confusion of multiple advisors working at cross purposes.
As we navigate the evolving landscape of hybrid working and its profound impact on commercial real estate, it’s clear that adaptability and strategic thinking are more crucial than ever.
The shift in office space usage, combined with changing market dynamics, presents both challenges and opportunities for investors. At CP, we’re dedicated to guiding you through these changes, ensuring your investments are not only protected but positioned for growth.
Get in touch with us to leverage our expertise and build a resilient, future-proof portfolio. Let’s build a rock-solid foundation together, so we’re ready to make the most of the new wave in commercial real estate.
