Overview of the Commercial Property Sector
Commercial Property provides organisations space to work and carry out their business. Commercial property is a huge sector of the modern economies. Commercial property assets (such as office blocks, industrial parks, factories and farms) make up a large proportion of pension fund equity and investment.
The commercial property sector is made up of the core sectors of retail property, warehousing and factories and office property. Properties within the leisure industry are also considered commercial assets.
As out-of-town shopping centres and large retail parks increase in popularity, so retail parks and out of town shopping property are rapidly overtaking in value, that of in town retail properties.
In the most part, commercial property tends to be leased by businesses and organisations rather than being owned outright. The advantages of renting premises provide companies with the flexibility of upsizing or downsizing the size of its premises in response to an economic downturn.
During periods of stagnation and uncertainty, the average length of time that commercial property leases are maintained is shortening. Companies opt for shorter and more flexible leasing terms. This helps to ensure long-term rental obligations are minimised should their company need to extricate themselves from a lease agreement.
Employment in the commercial property sector is significant as it includes not only the building and management of commercial property, but also the financing and administration roles required in managing commercial property and investment and asset management of commercial property. As a significant employer of property professionals the commercial property sector, redundancies can be significant when investment in commercial property slows down. The recent contraction building of new commercial property has resulted in job losses in construction and ancillary building trades.
When property prices go down, commercial property follows suit, and it appears that the value of industrial property over retail or office property, is impacted the most. Commercial property in the UK makes up about 5% of the funds invested in by pension and insurance companies. Despite economic doom and gloom investment in commercial property can still accrue returns that can outperform equities. Continued property price reductions can mean billions being wiped from the value of pension and insurance funds.
The demise of the high street has also been impacted by the explosion of online retail sales. Online models have created massive supply chains where large wholesale commercial storage facilities are sited out of town. High street store closures and empty properties are a big problem for local authorities. They are of course an unwanted feature for local residents and are problematic for landlords. Empty retail units in both high streets and out of town shopping malls make an area appear run down, disused and unattractive. This has a knock on effect to other potential retailers who may be wanting to open a new shop or outlet and who are looking for viable locations.
Financially, landlords are hit when rents discontinue but rates are still payable to the council, either through liquidation of a retail tenant or because of a naturally ending lease term. To make the high street a more attractive proposition for retailers, collaboration is required amongst the involved stakeholders. The owners of commercial property will be advantaged if the high street is regarded as attractive to retailers, through continued rent payment and subsequent property value.
Online listings make it easy to market commercial property. For example, owners of pop-up shops can search for viable empty locations to site their next temporary shop. Pop up shops are one way in which authorities are trying to stem the demise of the high street. Owners of commercial property can market their property to a variety of online estate agents. Agents have access to a huge number of online visitors searching for property to purchase or rent.
IN some countries, individuals can invest in commercial property using their pension pot. The returns from owning commercial property via a pension remain in the pension until the pension matures. Commercial property ownership and the letting of commercial property can be a viable way to top up funds within a personal pension either through rental yield or through capital growth when the property is sold in future years.