Value of transactions by commercial buyers down 71% since lockdown
The value of property transactions in England and Wales undertaken by commercial buyers has dropped 71% year-on-year since the first introduction of lockdown restrictions, according to the latest edition of Search Acumen’s Commercial Real Estate Insights series.
Property transactions completed by commercial buyers fell to £15.1bn between late March to September 2020, down from £52.1bn for the equivalent period during 2019; at the same time, the number of transactions dropped by 73%, falling to 23,036 in 2020 from 84,943 in the previous year.
Areas that experienced some of the sharpest fall in the value of transactions since lockdown include: Southampton, down 96% to £12.3m in 2020 from £288.7m in 2019; Swindon, down 92% to £13.3m in 2020 from £166.1m in 2019; York, down 88% to £18.3m in 2020 from £158.3.m in 2019.
The fall in the value and number of transactions is being partly driven by a contraction in demand for offices and rental properties due to the rapid switch to home working practices and a flight of people from inner city areas.
Activity in the commercial property market has been hit due in part to firms evaluating their need to retain office space in response to workers remaining at home.
Strict restrictions imposed on England and Wales’s property market between March and the middle of May 2020 also put downward pressure on activity levels, contributing to a reduction in the volume and value of transactions.
A ban on physical viewings of properties in part resulted in potential buyers being unable to assess properties’ suitability and valuation officers struggling to assign an appropriate price. This lack of information may have prompted buyers to renege on purchases or hold back on exploring new deals.
The research also revealed that growth in the value of transactions undertaken by commercial buyers since the lockdown has been highly concentrated in the North East of England, partly driven by commercial buyers looking beyond Greater London for returns on their investments.
County Durham (69%), Tyne and Wear (16%) and Northumberland (6%) all saw rises in the value of transactions since the lockdown, compared with the previous year.
This compares to a 77% drop in the value of property transactions undertaken by commercial buyers in Greater London over the same period.
Caroline Robinson, commercial real estate business development manager at Search Acumen, said: “This data reveals the scale of the impact the coronavirus pandemic and resulting lockdown responses have had on buying appetite from commercial investors across England and Wales.
“Companies are drawing up long-term strategies to incorporate remote working, with a large part of these plans including a reduction in their real estate footprint or downsizing to smaller workspaces to align with lower office footfall.
“The potential to fill large-scale residential housing projects, often found in cities, is decreasing due to consumers looking to relocate to areas outside city centres that better align with evolving tastes.
“Commercial buyers are already responding to the prospect of lower long-term demand by looking at areas that have the potential to provide returns in the future, with the North East of England in particular experiencing an inflow of investor capital.
“A reallocation of investment from traditional areas of buyer interest, such as Greater London, to new areas will help stimulate business growth across the UK.
“The commercial real estate sector needs to urgently prepare for the impact that widespread adoption of remote working practices and extended periods of social distancing measures may have on future occupancy rates.
“Developers must innovate and ensure properties meet firms’ and investors’ new requirements.
“Major trends developers should consider addressing in future development plans how technology is altering the use of office space, with movement of workers becoming increasingly fluid between different locations and flex spaces.
“Environmental and sustainability considerations are also playing a more important role in firms’ capital expenditure decisions. Developers failing to react to these underlying trends risk facing lower investment in the future.”