What's behind the rise commercial property investment?

Emma Cox - Managing Director of Real Estate, Shawbrook

Fluctuating prices and high borrowing costs are hampering confidence in the residential property sector. As a result, landlords are looking for other ways to diversify their portfolios and cater for current demand.

Commercial property is a good prospect for those who have typically specialised in the residential market and are looking to adapt their strategies, and recent research we conducted at Shawbrook has unveiled that more than one-third of landlords recognise the potential of commercial property.

Portfolio growth through diversification

In the midst of economic volatility and uncertainty within the property market, landlords are looking for ways to diversify their properties and adapt their strategies in order to future-proof their portfolios. One in five landlords are considering diversifying into commercial property, and more than a third (37%) of those planning to invest cited diversification as the key reason for doing so.

What’s key in a landlords’ diversification journey is choosing a lender who has the relevant expertise that ensures they can support and nurture a property investor in a new, unfamiliar sector.

Expansion in the commercial sector

For those landlords who already own commercial properties, 35% have stated that they are looking to invest in more in the near future. Most landlords with larger portfolios are likely to have already invested in the commercial space, however this doesn’t stop them from continuing to recognise the potential for growth in the sector.

36% of all landlords said that they have noticed the increase in demand for commercial property and thus view it as a good investment opportunity. In addition, a quarter of landlords believe there is currently a lack of good quality properties for businesses, indicating the value and possible need for development or conversion work.

Supporting local communities

Many landlords see the opportunity to branch into commercial property as a chance to support their local community (29%), with many planning to invest in small (33%) and large (30%) retail space. As our high streets change shape with more of a focus on local, independent, and experiential stores, landlords have the opportunity to play a role in the revival of the high street and boost our town centres across the UK. With hybrid working, more workers are outside of cities during the working week, meaning more opportunities for smaller businesses in towns and village centres.

Landlords could become the unsung heroes of the high street, with many planning to support their local communities by injecting new life into commercial properties and retail units.

Adapting to hybrid working demands

Hybrid working has also prompted a re-evaluation of our office needs, with many businesses looking for spaces that support the new ways of working. Demand for office space has increased according to recent data from Rightmove, and research from IWG found that half of businesses have opened offices and workspaces outside of city centres. This has started to focus landlords on this type of commercial investment (36%).

Other types of investment that landlords are interested in diversifying into include:

• Industrial or manufacturing space – 28%
• Factories or distribution space – 28%

In conclusion, the rise of commercial property investment among landlords is driven by the desire to diversify portfolios and adapt to the evolving real estate landscape. Commercial properties offer new opportunities for growth and support for local communities, making them an attractive choice for property investors. However, choosing the right lender is crucial in this journey. Whether it’s a landlord starting their diversification journey or already experienced in the commercial sector, lenders with a wealth of expertise can provide the necessary support and guidance to deliver their property ambitions.

Get in touch

Visit our website to learn more about our commercial proposition at Shawbrook, or chat to our commercial property specialists today.

Content provided by Shawbrook Bank Limited