Investment levels in commercial real estate are expected to fall by 24% this year

Investment levels in the UK commercial property sector are set to decline in 2022, after seeing a 40% year-on-year increase between 2020 and 2021, according to the latest market analysis from Revolution Brokers.

Just under £50bn was invested in the commercial sector last year, with the revival of a pandemic-hit London market fueling this activity with £21.2bn of investment alone . This equates to a 40% increase in commercial property investment compared to 2020, with an average of £4.162 billion being invested each month.

As of July this year, £22.2 billion had already been invested in the UK commercial property sector, giving an average monthly total of £3.172 billion. Based on this investment rate, Revolution Brokers estimates that total investment in commercial property is expected to be almost £38.1 billion by the end of the year.

While this amount is higher than the £35.7bn invested in 2020, it would mark a -24% year-on-year decline from the £50bn invested in 2021.

But what is behind this annual decline in investor appetite for commercial real estate? It would seem that an oversaturation of the stock available on the market could be the cause.

Between 2019 and 2020, the level of commercial property offered for sale across Britain fell by -26%, with this increased demand also pushing up the average asking price of commercial land by 6%.

This trend continued between 2020 and 2021, with available inventory declining another 14% year over year, with the average asking price this time increasing by 34%.

However, the level of inventory available on the market in 2022 has actually increased by 7% compared to last year, with this additional supply also causing the average asking price to drop by -17% year on year.

Almas Uddin, Founding Director of Revolution Brokers, commented: “While the residential real estate sector has exploded during the pandemic, the commercial landscape has been much more complicated, with Covid restrictions hitting the hospitality and office sectors particularly hard.

“Despite this, the commercial sector benefited from a notable level of investment in 2021, as many anticipated the impending uplift that work and leisure spaces have benefited from after returning to normal.

“This market activity has remained robust so far in 2022, which is a reassuring sign, however, we believe it will be below the benchmark set last year. This is not unusual after a Particularly high investment period and an influx of inventory to the market has also reduced the asking prices of these commercial plots.

“Of course, this presents a good opportunity for the savvy investor to strike when the price is right and build their trading portfolio at a better price than they could have done a year ago.”