Outlook for Commercial Property in 2021

Commercial property has typically been a popular asset class among institutional investors and funds and not an area which has attracted attention for retail investors.

Commercial property as an asset class tends to be higher-yielding than residential buy-to-let, and demand can be high in the right market. At the same time, commercial property contracts often come with rent guarantees along with long leases from business and corporate tenants, promising stable and growing rental income.

However, unlike residential property, commercial property is more susceptible to economic changes as it relies on business activity and job creation, and valuation is similarly driven by rental income.

In this regard, one of the effects of the Covid-19 pandemic has been the significant impact it has had on commercial property, both the larger office buildings as well as the smaller high-street commercial buildings. Stemming from this, the UK Government announced major changes to the planning system in England in September 2020, making it easier to redevelop commercial sites and build new homes to meet the country’s housing shortage. Some of the key aspects of the changes include:

  • An extension of the permitted development rights through reforms to the Use Classes Order “commercial, business and service”. This means that a wider range of commercial buildings will now be allowed to change to residential use without the need for a planning application. Pubs, libraries, village shops and other types of uses “essential to the lifeblood of communities” will not be covered by these flexibilities.

  • Flexible measures to enable vacant or redundant residential and commercial buildings to be converted to residential properties within the same footprint. The Government has mentioned that “normal planning applications” will not be required.

  • Allowance to build additional space above commercial properties via a fast-track approval process, subject to neighbour consultation. This includes upward extensions.

Altogether, these changes cut down the lengthy, bureaucratic planning impediments that hinder property investors and will allow greater flexibility to investors looking to repurpose commercial property. This opens an exciting and lucrative opportunity for investors who are looking for new opportunities to build and enhance their property portfolios.

As a specialist in both residential and commercial property, FPI is in a strong position to support investing who are interested in exploring the new opportunities in commercial property investment and repurposing. For more information, get in touch with us to arrange a free, no commitment discussion.

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