2021
9
UK Commercial Property Market Report 2021
2021-07-09T04:09:34+01:00
OX1049203
1495
140150
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Report
en_GB
“The commercial property market had already begun to enter a phase of structural change well before the onset of the pandemic. The impact of COVID-19 has accelerated many existing trends…

UK Commercial Property Market Report 2021

£ 1,495 (Excl.Tax)

Description

Providing the most comprehensive and up-to-date information and analysis of the UK Commercial Property market, including the behaviours, preferences and habits of the consumer.

The embattled retail sector was hardest hit by the COVID-19 fallout, with the capital value of retail property falling by a significant 18% in 2020. Nonetheless, some sub-sectors of the retail market showed resilience during 2020, most notably supermarkets and retail parks.

The commercial property market had already begun to enter a phase of structural change well before the onset of the pandemic. The impact of COVID-19 has accelerated many existing trends including the demise of the traditional high street, the rapid rise of ecommerce and urban logistics and a shift towards more agile and flexible work practices.

The adoption of WFH practices during the pandemic is set to have a lasting impact on the office market, with many companies planning to adopt hybrid working models post-COVID-19, where employees will continue to work remotely for some of the time. This is expected to lead to a decline in office space requirements by tenants and greater demand for more flexible office leases. However, the actual impact of new work practices is likely to be sector dependent.

While the pandemic suppressed demand in other parts of the property market, it stimulated logistics sector activity. The accelerated shift to online retail will further boost demand for high-quality, well-located warehouse space. The pandemic has also highlighted the importance of modern, efficient, resilient logistics supply chains, resulting in increased occupier demand. Furthermore, demand from data centre operators is expected to increase as COVID-19 has accelerated the digital transformation of business.

Read on to discover more details or take a look at all of our UK Household, House and Home market research.

Quickly understand

  • The impact of COVID-19 on the UK commercial property market and key sub-sectors.
  • Opportunities and threats across the key sectors of the commercial property market.
  • How the market is expected to develop over the next five years.
  • Trends in investment activity across the key sub-sectors of the commercial property market.

Covered in this report

Brands: British Land, Bruntwood, Grosvenor Group, Hammerson, Landsec, SEGRO.

Expert analysis from a specialist in the field

Written by Claudia Preedy, a leading analyst in the Food & Drink sector, her extensive knowledge delivers in-depth commentary and analysis to highlight current trends and add expert context to the numbers.

The commercial property market had already begun to enter a phase of structural change well before the onset of the pandemic. The impact of COVID-19 has accelerated many existing trends including the demise of the traditional high street, the rapid rise of ecommerce and urban logistics, and a shift towards more agile and flexible work practices.
Looking ahead, the retail property sector is unlikely to recover to pre-crisis levels. Retail assets which are focused on placemaking, destination appeal or convenient locations that can play a role in facilitating online fulfilment are best placed to thrive post-COVID-19.
The move towards greater workplace agility is likely to lead to a decline in office space requirements by tenants and greater demand for more flexible office leases. Meanwhile, the prime logistics sector is set to continue to outperform the overall market, with demand boosted by the growth in online retail and a renewed focus on best-in-class logistics supply chains.
Claudia Preedy
Senior B2B Analyst

Table of Contents

  1. Overview

    • Key issues covered in this Report
    • COVID-19: market context
    • Economic and other assumptions
    • Covered in this Report
  2. Executive Summary

    • Impact of COVID-19 on the commercial property sector
      • Figure 1: Short-, medium- and long-term impact of COVID-19 on commercial property, (prepared on 24 June 2021)
    • The market
    • Capital value of UK commercial property down by an estimated 7% in 2020
      • Figure 2: Value of UK commercial property market, 2011-20
    • Investment market severely disrupted by COVID-19
      • Figure 3: Investor-owned share of UK commercial property market, 2016-20
    • Offices account for nearly a third of UK commercial property market
    • Retail sector’s share of commercial property market falls from 40% in 2014 to 27% in 2020
    • Industrial/logistics sector shows resilience
    • Capital value of ‘other’ commercial property sector down by an estimated 12% in 2020
      • Figure 4: Segmentation of the UK commercial property market, 2016-20
    • Commercial property capital value expected to recover from 2022 onwards
      • Figure 5: Forecast of commercial property market compared with expectations prior to COVID-19, 2020-25
    • Companies and brands
    • Overseas investors represent largest single investor type in the UK commercial property sector
      • Figure 6: Holdings in commercial property market, by investor type, 2020 (% of total investor-owned commercial property stock)
    • ESG factors moving up the corporate agenda
  3. Issues and Insights

    • While the retail sector has been hit hard by the pandemic, investment opportunities remain
    • ESG factors increase in importance in commercial property industry
  4. The Market – Key Takeaways

    • Capital value of UK commercial property market down by an estimated 7% in 2020
    • Investment market severely disrupted by COVID-19
    • Investors are scaling back their retail exposure
    • Logistics sector remains highly attractive
    • COVID-19 has introduced a significant disruptor to office market
    • Alternatives sector expected to rebound as country emerges from COVID-19
  5. Market Size

    • Overview
      • Figure 7: Value of UK commercial property market, 2016-20 (£ billion)
      • Figure 8: Value of UK commercial property market, 2011-20
    • Investment market severely disrupted by COVID-19
      • Figure 9: Investor share of UK commercial property market, 2015-20 (£ billion and %)
    • Non-residential floor space and rental values
      • Figure 10: Non-domestic property floorspace and rental value in England and Wales, 2012-20
  6. Market Segmentation

    • Segmentation by sector
      • Figure 11: Segmentation of the UK commercial property market, by sector, 2016-20 (£ billion)
      • Figure 12: Sector share of investor-owned commercial property stock, 2020 (% of capital value)
    • Segmentation by investor type
      • Figure 13: Holdings in commercial property market, by investor type, 2016-20 (£ billion)
      • Figure 14: Investor commercial property market, by sector, South East and rest of UK, 2018 (£ billion and % of total)
  7. Office Sector

    • Overview
    • Overseas investors own half of all invested office stock in the UK
    • Flexible office space set for further strong growth post-COVID-19
    • More traditional property owners and landlords to enter flexible workspace market
    • 2020 sees low take-up in regional office market
    • London office take-up stalls in 2020
    • London office investment market expected to pick up in second half of 2021
    • London office construction activity remains above the long-term average
    • London grade A office space expected to be well placed to adapt to new occupational models post COVID-19
    • Regional office supply pipeline
    • Invested stock accounts for over three quarters of UK office property stock
      • Figure 15: Capital value of the UK office market, 2016-20 (£ billion)
      • Figure 16: Office property transactions in Great Britain, 2016-21
      • Figure 17: Central London office property transactions, by investor type, 2021
      • Figure 18: Rest of UK office property transactions, by investor type, 2021
      • Figure 19: office floorspace and rental value in England and Wales, 2012-20
  8. Retail Sector

    • COVID-19 accelerates structural change in the retail sector
    • Move towards retail space repurposing and mixed-use spaces
    • Retail parks show resilience during COVID-19 crisis
    • Central London retail investment market subdued in 2020
    • Shopping centre investment records worst year on record in 2020
    • Supermarkets provide secure investment alternative
    • Retail sector’s share of commercial property market falls from 40% in 2014 to 27% in 2020
      • Figure 20: Capital value of the UK retail property market, 2016-20 (£ billion)
      • Figure 21: Retail property transactions in Great Britain, 2016-21
      • Figure 22: Shopping centre property transactions, by investor type, 2021
      • Figure 23: Retail warehouse property transactions, by investor type, 2021
      • Figure 24: Shop/supermarket property transactions, by investor type, 2021
      • Figure 25: retail floorspace and rental value in England and Wales, 2012-20
  9. Industrial Sector

    • Overview
    • Amazon drives record take-up in the industrial and logistics property sector
    • Industrial and logistics investment volumes up by 11% in 2020
    • Supply shortage remains an issue
    • Industrial sector is the only main commercial property class to record capital value growth in 2020
      • Figure 26: Capital value of the UK industrial property market, 2016-20 (£ billion)
      • Figure 27: UK industrial property market, by region, 2020 (% of total)
      • Figure 28: Industrial property transactions in Great Britain, 2016-21
      • Figure 29: Industrial property transactions, by investor type, 2021
      • Figure 30: industrial floorspace and rental value in England and Wales, 2012-20
  10. Other Commercial Sector

    • Overview
    • UK hotel investment market expected to see beginning of strong recovery in 2021
    • Investors attracted to diverse leisure sector by secure, long-term income opportunities
    • Line between retail and leisure is becoming increasingly blurred
    • Strong growth in ‘experiential’ leisure
    • Capital value of ‘other’ commercial property sector down by an estimated 12% in 2020
      • Figure 31: Capital value of the UK other commercial property market, 2016-20 (£ billion)
      • Figure 32: Property transactions in the leisure sector in Great Britain, 2016-21
  11. Regional Analysis

    • Regional analysis of non-domestic properties in England and Wales
      • Figure 33: Number of non-domestic rateable properties in England & Wales, by sector and region, 2020 (000s and % of total)
      • Figure 34: Rateable value of non-domestic properties in England & Wales, by sector and region, 2020 (£ million and % of total)
    • Regional analysis of commercial property transactions
      • Figure 35: Commercial property transactions in Great Britain, by region, 2017-21 (£ million)
      • Figure 36: Regional importance in commercial property transactions, 2018-20
  12. Market Forecast

    • Short-, medium- and long-term impact of COVID-19 on the commercial property sector
      • Figure 37: Short-, medium- and long-term impact of COVID-19 on commercial property, (prepared on 24 June 2021)
    • Market drivers and assumptions
      • Figure 38: Key economic drivers affecting MBD’s market forecast, 2019-2025 (prepared on 6 May 2021)
    • Forecast methodology
    • Commercial property capital value expected to recover from 2022 onwards
      • Figure 39: Forecast UK commercial property market, 2020-25
    • Industrial/logistics sector set to continue to outperform market
      • Figure 40: Forecast segmentation of the UK commercial property market, 2021-25 (£ billion)
      • Figure 41: Forecast segmentation of the UK commercial property market (COVID-19-adjusted), 2021-25
    • Investor demand set to remain focused on secure, long-term income streams
  13. Market Trends

    • Environmental, social and corporate governance (ESG) factors moving up the corporate agenda
    • Development of commercial property yields
      • Figure 42: Prime market yields, by sector, 2018-21 (%)
    • Rental price developments
      • Figure 43: Prime office rents in the UK, 2011-2020
      • Figure 44: Prime retail rents in the UK, 2011-2020
      • Figure 45: Prime industrial rents in the UK, 2011-2019
      • Figure 46: Prime industrial rents (Big Box) in the UK, 2020
    • Trends in commercial property lending
  14. Market Drivers

    • Economic factors
    • UK economy contracts by record 9.8% in 2020
      • Figure 47: Annual GDP growth rate, 2015- 20, (annual % change)
    • Economic recovery gathering pace, but longer-term outlook less clear
      • Figure 48: Expectations of GDP annual percentage change, 2021-25
    • Bank rate remains at historic low of 0.1%
      • Figure 49: Bank rate, 2008-20, by date of adjustment
    • Businesses are becoming more confident
      • Figure 50: ICAEW UK National Business ConfidenceTM index, 2014-2021
    • Business investment
      • Figure 51: UK business investment, £ million, 2015-2020
    • COVID-19 escalates trend towards shorter leases
    • COVID-19 accelerates shift to online retail
      • Figure 52: Growth of value of retail sales at current prices seasonally adjusted, 2016-20 (% change on previous year)
      • Figure 53: Average weekly value for all retailing and for internet sales, January 2019-April 2021
    • Other factors
    • Planning law changes
    • Government relaxes planning rules for converting unused commercial buildings into homes
    • Supply and demand factors
    • Business rate revaluations contribute to the decline in high street retailers in some regions
    • Tax changes for non-resident investors in UK commercial property
    • Property returns fall across all main commercial property classes in 2020, except for industrial assets
      • Figure 54: Annual property returns, by sector, 2016-20 (% change)
    • Non-residential property transactions
      • Figure 55: UK non-residential property transaction completions, by country, 2016-20
      • Figure 56: UK non-residential property transaction completions, January 2017-April 2021
    • Commercial construction – long-term susceptibility to recession
      • Figure 57: Long-term development of commercial construction, 1970-2020
      • Figure 58: Commercial construction output, 2015-25
      • Figure 59: Segmentation of commercial construction, 2015-20 (£ million)
    • Industrial construction – COVID-19 disrupts a buoyant market
      • Figure 60: Long-term development of industrial construction, 1970-2020
      • Figure 61: Industrial construction output, 2015-25
      • Figure 62: Segmentation of industrial construction, 2015-20 (£ billion)
  15. Companies and Brands – Key Takeaways

    • Overseas investors represent largest single investor type in the UK commercial property sector
    • REITs, which are more exposed to the retail sector, look to diversify their portfolio
    • ESG factors moving up the corporate agenda
  16. Industry Structure

    • Overview
      • Figure 63: Holdings in commercial property market, by investor type, 2020 (% of total investor-owned commercial property stock)
      • Figure 64: UK investor share and overseas investor share in each commercial property sector, 2018
    • Overseas investors
      • Figure 65: Overseas holdings in commercial property market, by investor type, 2018 (% of total)
    • REITs
    • Collective investment schemes
    • Institutional investors
      • Figure 66: Holdings in buildings, property, land and new construction work by institutional groups, 2013-18
      • Figure 67: Net investment in buildings, property, land and new construction work by institutional groups, 2014-18
  17. Company Profiles

    • British Land
      • Figure 68: British Land portfolio weighting, as at 31 March 2021 (£m and % of total)
    • Company strategy
    • Financial performance
      • Figure 69: Financial analysis of British Land, 2017-21 (£ million)
    • Bruntwood
    • Company strategy
    • Financial performance
      • Figure 70: Financial analysis of Bruntwood, 2016-20 (£ million)
    • Grosvenor Group
    • Company strategy and outlook
      • Figure 71: Financial analysis of Grosvenor Group, 2016-20 (£ million)
    • Hammerson
    • Hammerson disposes of its retail parks portfolio
    • Company strategy
    • Financial performance
      • Figure 72: Financial analysis of Hammerson, 2016-20 (£ million)
    • Landsec
      • Figure 73: Landsec portfolio weighting, by market value, as at 31 March 2021 (% of total)
    • Company strategy and outlook
    • Financial performance
      • Figure 74: Financial analysis of Land Securities, 2017-21 (£ million)
    • SEGRO
    • Company strategy
    • Financial performance
      • Figure 75: Financial analysis of SEGRO, 2015-20 (£ million)
  18. Appendix – Data Sources, Abbreviations and Supporting Information

    • Abbreviations
    • Methodology
  19. Further Sources and Contacts

    • Trade associations
    • British Property Federation
    • The Association of Real Estate Funds
    • British Council for Offices
    • The Commercial Real Estate Finance Council Europe
    • The Investment Association
    • The Investment Property Forum
    • Trade magazines
    • Estates Gazette
    • Property Magazine International
    • Property Week
    • Property Wire
    • Trade events
    • RICS Corporate Real Estate & Facilities Management Conference 2021
    • MIPIM September Edition

About the report

This market report provides in-depth analysis and insight supported by a range of data. At the same time, introductory and top-level content is provided to give you an overview of the issues covered.

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