As the High Street declines is this the moment when commercial investors shift their attention to the residential market for better returns?
Leading property management firm, UK-wide property management platform apropos, believes that the downturn in the High Street means that many investors in the commercial sector are looking for potentially better returns and greater financial stability which the residential market may offer.
Although the High Street has undoubtedly suffered since the coronavirus pandemic hit in March of this year many parts of the retail sector have been in trouble for some time.
The issues that impacted negatively on the High Street before coronavirus – buyers going online for purchases, landlords charging unrealistic rents based on historic revenues, and the decline of the casual dining sector – means that the pandemic has simply accelerated a decline which was already occurring.
The likelihood of a return to a busy High Street is uncertain and much of its financial structure is based on an outmoded model of town and city development which indicates we may be at a tipping point in the evolution of our urban centres.
The shift from commercial property investment to residential has been occurring for some time. Large scale investors such as L & G have already made a major shift toward residential with their investment in the build to rent sector across the UK.
A recent Zoopla report revealed that gross yields can be as high as 7.7% on capital outlays of as low as £70,000 producing a strong return on investment for a relatively low cost.
This would indicate that investors at all levels will find the residential property market an attractive proposition.
David Alexander, joint managing director of apropos, commented:
“There has been a serious decline in consumer activity within our town and city centres with a resulting loss of jobs in many well-known High Street brands. But this change has been happening for many years and coronavirus has simply exacerbated and accelerated this shift in customer demand.”
“The move to buying online, the inflexibility of commercial landlords in setting long term rents at often unreasonable levels, coupled with over expansion in the casual dining sector has made the traditional High Street vulnerable for many years. The shift to home working brought on by the pandemic has only made the situation worse and it is unlikely that things will get better any time soon.”
David continued: “While many more people will eventually return to traditional working methods and travelling to city and town centres there does seem to have been a more significant, and perhaps permanent, change in consumer consumption patterns which could have a major long term impact on the commercial property sector.”
“The bounce back experienced in the residential sector since the ending of lockdown is a clear indicator of pent-up demand but also reflects the greater importance individuals are placing on their home.”
“All those months of lockdown seem to have made owners and renters more appreciative of the need to have a great place to live in. The result has been a boom in property sales and an unprecedented increase in activity in the private rented sector as people prioritise home life above everything else.”
David concluded: “The result is likely to be that individuals, property investors, and major institutions may start to feel that the returns from residential property investment offer similar returns to commercial property but substantially greater stability in the long run.”
“People may not return to the High Street any time soon, but they will always want to have a good home. I believe that we will see a shift in sentiment toward the residential market over the next few years as uncertainty and instability takes its toll on commercial sector sentiment.”