Growth expected in commercial property market

Savills expects to see growth in the UK’s commercial property market in Q4.   

The sector had a good start to 2024, as cross-border investment hit $14bn in H1, with the UK attracting more capital than the USA or any European peers. Investors were given a further boost by the first cut to Bank Rate in over four years in August. As a result, many buyers are reaching an inflection point and more capital is set to be deployed in Q4.  

Joint Head of UK Commercial Investment at Savills, James Gulliford, commented, “We are seeing rising confidence in the UK’s economic fundamentals which should drive tenant demand and feed through into yield hardening from the end of the year.” 

Mat Oakley, Savills’ Head of UK and Europe Commercial Research, added, “The UK’s return to a focus on creating an environment to support economic growth is a solid strategy, although reversing the macro trend of the last eight years or so will be slow and there are risks that could threaten this growth.” 

UK hotels update 

It was a strong Q2 for the regional hotel market, according to recent data from Knight Frank.  

Occupancy across regional UK hotels remained stable in Q2 of this year at 77% – only 3% less than Q2 of 2019.  

Average daily rate (ADR) was up 4.3% year-on-year, driven by heightened demand for meetings and events space. Select Service and Upper-Upscale segments displayed particularly strong growth, with their ADR up 5.4% and 4.6% respectively.  

Golf and spa hotels outperformed the rest of the market, with revenue per available room going up by 20% annually. This boost is likely thanks to a 6% increase in occupancy and 10% rise in ADR.  

There was strong growth in departmental income due to a slowdown in rising costs and robust revenue growth, with food and beverage income going up by 9% per available room in Q2. 

Many commercial properties must improve energy efficiency 

In 2027, new regulations are expected to require all commercial properties to have an EPC rating of C or above.  

According to Essential Green Skills, leaders in sustainable building compliance, about 28% of commercial properties currently have an EPC rating of D or below. This means an estimated 130,000 properties could face fines of up to £150,000 if they don’t improve their rating soon.  

Failing to meet the new standards could make properties unlettable, thus reducing their market value. Upgrading EPC ratings should not just be a box-ticking exercise – a property with a higher energy efficiency will be much more appealing to environmentally-conscious tenants. 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. 

All details are correct at the time of writing (18 September 2024)

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