Shortage of Homes Beginning to Impact Commercial Market

A recent survey has highlighted a new problem hitting the commercial property market. As the economy continues to recover and businesses are looking to grow, they are facing difficulties securing the right type of property. This is in part due to the increasing popularity of converting commercial sites into residential properties.

A survey for the Royal Institution of Chartered Surveyors (RICS) has highlighted that a growing number of office developments across the country are being turned into homes. Instead of drawing in new companies, landlords are removing the commercial gates and selling to residential investors. In the second quarter of this year, we saw an increase in the number of commercial buildings selling with Permitted Development Rights, enabling them to be used for residential purposes.

Hitting the Commercial Market

This new trend for living in old office and industrial buildings is starting to have an impact on the business property market. There is now less availability of properties in the areas that businesses want to buy in. With this decline in the number of commercial properties available, particularly in central locations, companies now have to look at alternative sites. This could mean moving further away from their customers or being situated in a less-desirable area.

According to those who responded to the survey, there was a 49% net balance who believed that this was having a ‘moderate’ effect on the market. However, others believe that it is having a more detrimental effect on commercial property, with an 18% net balance saying the impact was ‘substantial’. The results of the survey showed a 33% rise in the number of surveyors who said there was a shortage of office and industrial sites.

There are differences in attitudes across the country, with the move to convert premises with commercial gates for residential use more marked in the south. Here there was a 32% net balance amongst those who responded by saying the effect was ‘substantial’. However, in the north of the country 49% believed that it was having ‘no effect’ on the commercial property market.

Impact on Rents

As the shortfall in commercial properties increases, landlords will be in a prime position to put up rents. The survey showed a 33% increase in the net balance of surveyors who are predicting that rents will rise over the next year. The envisaged rises are 5.5% for industrial sites, 4.3% for office buildings and 2.8% for retail outlets. With more competition for individual sites, landlords and agents will be able to pit businesses against each other. This could lead to companies paying more for popular locations.

As we return to a more buoyant economy, we are seeing a rise in the number of businesses looking for commercial space. During the downturn, they tended to maintain their current situation, but they now want to expand and develop their companies. However, this potential growth is being hit by a need to build more homes, with investors looking for alternatives to the traditional home.