UK commercial property went through a significant correction as interest rates rose. Higher borrowing costs and more attractive yields elsewhere forced values down across most sectors, and transaction volumes fell as buyers and sellers struggled to agree on price.
Corrections are uncomfortable, but they are also where long-term opportunities are created. With much of the repricing now behind us, we believe selective value is returning, provided investors are disciplined about which assets they buy and how they finance them.
Why the backdrop is improving
Property values are driven by two forces: the income an asset produces and the yield investors demand for that income. The rise in rates pushed required yields sharply higher. As inflation has moderated and interest rate expectations have stabilised, that pressure has eased. Meanwhile, in many sectors rents have continued to grow, supported by limited new supply after years of high construction costs.
The combination of reset prices and resilient rents means buyers today can often secure higher starting yields than at any point in the last decade.
Logistics: structural demand remains
Online retail, the reshoring of supply chains and the need for modern, energy-efficient warehouses continue to underpin demand for logistics space. Values corrected as yields moved out, but occupier demand for well-located, high-specification buildings has held up. We favour assets close to major population centres and transport routes, where scarcity of land supports rental growth.
Residential: a long-term undersupply
The UK has built too few homes for many years, and demand for good-quality rental housing remains strong. Purpose-built rental and well-managed residential assets offer income that tends to rise with wages and inflation over time. The key risks are regulatory change and maintenance costs, so we focus on newer, efficient stock and experienced operators.
Offices: a market of two halves
Offices have faced the toughest questions, as hybrid working has changed how much space businesses need. But the picture is not uniform. Occupiers are concentrating into fewer, better buildings: modern, sustainable and well connected. These prime offices continue to attract tenants and rental growth, while older, less efficient buildings face rising vacancy and costly upgrades to meet energy standards. For investors, the distinction is critical.
What we look for
- Durable income from strong tenants on sensible lease terms.
- Quality and sustainability, as energy performance increasingly drives both demand and value.
- Location with lasting appeal to occupiers.
- Conservative financing, so returns do not depend on rates falling.
- A clear plan for how each asset will be managed and, eventually, sold.
The bottom line
The days when almost any UK property rose in value on the back of falling rates are over. Today's market rewards selectivity, careful due diligence and patience. For investors who apply those disciplines, the reset in pricing offers an opportunity to buy quality assets at more attractive levels than for many years.
This article is for general information only and does not constitute investment, tax or legal advice. The value of investments can fall as well as rise and you may get back less than you invest. Please seek personalised advice before making any financial decision.