In this guide, experts at ABC Finance help Finance Monthly break down what commercial mortgages are, how they work, how the application process works and how much you’re likely to pay.

What is a commercial mortgage?

Commercial mortgages are, much like residential mortgages, a long-term long which is used to purchase or refinance a property. As with residential mortgages, the lender takes security over the property or land in question and allows you to borrow money against it.

Commercial mortgages aren’t just used to raise money against commercial or semi-commercial property, usually almost any security can be considered. It’s common to see a commercial mortgage used to fund land or even predominantly residential security, such as large HMOs, large buy to let portfolios and holiday lets.

Commercial mortgage uses

Funding can be arranged for one of two main reasons:

• To purchase or refinance a property for your business to trade from;
• To purchase or refinance a property as an investment.

Although almost all applications will come down to one of these two reasons, each application will have its own intricacies and lenders will be flexible in understanding your circumstances.

As mentioned above, unlike residential mortgages, commercial mortgage lenders are generally quite flexible in the security offered. Commercial mortgages can be an ideal option for unusual properties, or even to raise finance against land.

The documents needed to apply for a commercial mortgage

When you apply for a commercial mortgage, the lender will usually want to see a number of supporting documents to help them assess your application. Although the exact documents required will vary from lender to lender, there are a number of documents that are commonly requested.

Firstly, the lender will want to check that the proposed mortgage is affordable. To do this, they will request a copy of the latest two years accounts for owner-occupied applications, or a copy of the lease, or leases for investment properties.

These documents are used to assess the proposed repayment against the money coming in.

In addition to the accounts or leases, the lender will also request 3-6 months bank statements, which will be used to check your account conduct. This gives the lender an understanding of how much of that income is left at the end of each month, and how well the account is managed.

For investment properties, only personal bank statements are required. For owner-occupied properties, the lender will also request your business bank statements.

The final document that is requested on almost every application is an assets, liability, income and expenditure summary. This gives the lender a breakdown of your personal cash flow and net worth positions.

This document provides a simple insight into your personal finances and alerts them to any potential future problems.

How are commercial mortgages assessed by lenders?

The processing of commercial mortgage applications is more of a manual process than residential mortgages, which are largely assessed by a computer.

Lenders will often take a common-sense approach to situations and will look at the bigger picture to fully understand the circumstances surrounding the application.

The other big difference between residential and commercial mortgages is that the valuation is undertaken later in the process. A surveyor is not usually instructed until after the mortgage offer is issued.

As a result, applications tend to take longer than standard mortgages, with applications usually taking 6-8 weeks to complete on average.

Commercial mortgage rates and terms

Commercial mortgage rates can vary widely between lenders. For an owner-occupied application, rates of between 2.75% and 3.75% are average for high street lenders.

Commercial investment rates range from 2.85% to 4% on average from the high street banks.

Challenger banks will usually charge a little bit more but will be more flexible in their lending criteria. Rates start from 4.29% and tend to hit around 7% for higher risk, higher loan to value applications.

In addition to the interest charged, lenders will usually charge an arrangement fee of between 1.5-2%. This is usually paid on completion and can be added to the loan in most cases.

Owning a home is one of the biggest dreams for many, yet the process of buying any property can be laborious and flooded with additional fees, delays and disappointments. Blockchain may just be able to chain that. Below Finance Monthly benefits from expert insight from Kai Peeters, the Founder and CEO of HiP, on the implementation of blockchain in the real estate sector.

We are now bearing witness to blockchain based technology coming out of its infancy, and showing how it can be applied to vastly improve multiple markets - including the archaic property market. With a few established businesses and technology giants warming to blockchain, we have to start asking more profound questions about/around how it could improve the situation for a buyer/ buyers and the real estate market as a whole.

The current housing market simply does not work for the majority of first-time buyers. Working exclusively with traditional financial institutions, real estate markets around the globe confine first-time buyers in long-term unmovable loans that put enormous pressure on young people looking to buy a home. This is why, despite interest rates being reasonably low, the number of new mortgages has been declining since the 1990s. Meanwhile, the minimum deposit is largely unaffordable for people who earn average wages, and without help from their family it is virtually impossible for them to get on the property ladder. Technology can transform the way we buy and sell real estate by eliminating additional costs and disorganization of our housing market, Smart contracts that can handle that aspect more efficiently.

Having a decentralized real estate platform addresses current market issues, and introduces the individual investors who can fill the void left by traditional financial institutions and inject more life into the market. This can also allow property to become a more valuable asset in itself, where each buyer is able to release equity without losing ownership, and raise money free of debt. Being able to turn equity into currency and have control over debt levels brings the choice back to the buyers, owners and investors.

The upcoming platform HiP was designed with all those benefits in mind, especially for first time buyers, who can use an inbuilt calculator to enter the price of the property they want to purchase as well as the down payment and monthly payments they can afford. HiP will then calculate the remaining amount needed to buy the property and this outstanding amount is offered out to investors. This means that the first-time buyer will own a percentage of the property whilst also being entitled to a proportional percentage of profit and capitals gains when sold. Investors on the HiP Exchange who have co-financed the property will also receive return on their percentage of the real estate equity they own.

This is a new world of opportunity for first time buyers who now have access to other financing options that were previously unattainable to them. With HiP focusing on the way we fund properties, and other innovative minds using blockchain based technology in other areas of the real estate sector, it is only a matter of time until the array of problems within the real estate markets becomes a thing of the past.

2018 is expected to be the year for high street collapses, and it’s already looking like a grim year for retail survival, never mind growth. In the UK 2017 saw even more shops go bankrupt, and the last decade has only been exemplary of a slow decay for British shopping, from Woolworths, BHS and JJB Sports, to Blockbuster, Virgin Megastores and Phones 4U.

Above is Finance Monthlys list of five top UK retailers that are the most likely to be closing down in 2018.

In 2017 a grand 50 US retailers filed for bankruptcy, including Toys R Us, True Religion and RadioShack, and 2018 is set to be just that much harsher for US malls and high streets, with over 3600 stores set for closure.

Above, Finance Monthly takes a look at 5 of the most anticipated ‘closing downs’ on America’s high streets this year.

While he retains a strong voter base in the conservative heartlands of North America, the Presidency of Donald Trump continues to be defined by an excess of smoke and a seemingly endless hallway of mirrors. Nothing embodies this better than the former real estate mogul's comprehensive tax reform plans, which has been presented as legislation for low and middle-income earners in the US.

While Trump's estimates suggest that the typical American family will receive a tax cut of $1,182, however, it will also offer huge breaks to wealthier citizens and the largest corporations in the US.

In fact, Trump's decision to slash the base corporate tax rate from 35% to just 21% represents the focal point of his proposed reforms, while it has already created considerable opportunities for entrepreneurs and investors alike. Here's how.

How Does Trump's Tax Reform Work and Who are the Initial Winners?

As well as slashing the corporate tax rate in the US by 14%, President Trump has provided sweeping tax reductions for special interests while also lowering the top federal tax rate from 39.6% to 37%.

Interestingly, the commercial tax cuts are permanent and will be sustained for the entire duration of the Trump administration and beyond, until the President's successor proposes his own reforms in the future.

While this will benefit all businesses to some degree or another in the US, those currently paying an inflated level of corporation tax will be the biggest winners. So too will corporations that hold considerable amounts in overseas cash and investments, with both of these tax breaks offering natural advantages to some of the largest and highest earning companies in the world.

Take Apple, for example, who at the time of writing hold an estimated 94% of its $269 billion cash reserves in overseas balances. As a direct result of Trump's tax reform, the CFRA estimates that the technology brand will be ultimately repatriate as much as $200 billion of this capital back into the US, while using the proceeds to buy back stock and boost its bottom line even further.

The same principle can also be applied to companies such as Amazon and Facebook, while JP Morgan analyst Sterling Auty has stated that US-based software stocks will also emerge as the largest beneficiaries of the tax reform. This includes prominent brands such as Intuit and Aspen Technology, who tend to have the majority of their revenue domiciled in the US and boast exceptionally high profit margins.

How will this Influence Investors?

Traders may be looking to take advantage of those companies that have benefited from the reforms, of course, and fortunately Trump's legislation has provided clear and obvious benefits for corporations that meet certain criteria relating to their business model and infrastructure.

More specifically, there should be a clear focus on companies that boast significant cash holding overseas, as well as those that have naturally high profit margins.

This includes a large majority of businesses in the vast and diverse technology sector, with brands such as Apple able to leverage their infrastructure, international reach and inflated margins to benefit significantly from Trump's multi-layered tax reform.

The high street is reeling after a winter of ill health. Toys R Us, Maplin, House of Fraser, Claire’s: it seems that even stalwarts of the retail landscape aren’t immune to rising rents, the burgeoning ecommerce market and wavering consumer confidence. Below Finance Monthly gains special insight from Andrew Watts, Founding Partner, KHWS, The Brand Commerce Agency, on the impact behavioural science can have on high street performance.

Many other household names appear on the brink of crashing. The question must now be, is the high-street blight another blip or could it this time be terminal?

Nowhere are the symptoms more obvious than casual dining chains like Prezzo, Carluccio’s and Jamie’s Italian. These eateries and others like them have enjoyed the benefits of the booming experience economy in recent years, but not anymore.

Their current troubles are based in low consumer confidence which started with the financial crash almost a decade ago. As real-term income has dropped, and the cost of raw materials increased, consumers have become even more selective about how they spend their disposable income. Retail therapy is no longer proving the consumer tonic that it once was, and even the experience economy is under pressure. A nice experience is no longer enough; spending must result in a clear benefit and value for money.

The homogenised nature of casual dining is a sound example. The majority of chains are backed by private equity, so scale and profit are a key part of their basic business strategy. As a consequence, each brand offers similar mediocre food and a mirror-image dining experience. It’s become harder to charm consumers into splashing out and coming back. Add rising prices to the mix, and people can be forgiven for dining out less.

What’s unfolding in casual dining is symptomatic of a wider malaise on the high street, but this trauma needn’t be fatal. In casual dining, we can see the possible remedies that can be used to salve other areas of retail - a natural downsizing of the market coupled with stronger brand differentiation.

Understanding consumer behaviour is of fundamental importance to succeeding in this landscape. Establishing how and why spending decisions are made will empower brands to tailor their marketing messages accordingly. Behavioural science-led marketing techniques are now enabling brands to do just this, something that has not previously been possible.

Working in partnership with Durham University Business School, we examined the hardwired short-cuts – known as heuristics – that everyone uses to make decisions. We then identified and reframed the nine most relevant to purchase decisions; we refer to them as Sales Triggers.

For casual dining brands, there are two Sales Triggers that are particularly relevant and could prove the cure for the current problems ailing them: Brand Budgeting and Less Means More. This means using marketing messaging to demonstrate real value in a crowded marketplace (Brand Budgeting) and also offering something different or exclusive that enhances the experience when dining (Less Means More).

Despite the seemingly dismal outlook on the high street, some retailers are bucking the trend. Grocery discounters like Aldi and Lidl are triumphing because of their successful use of the Brand Budgeting and Less Means More Sales Triggers. There are some success stories in fashion retail, too. FatFace and Ted Baker have done well in the past quarter, posting robust Christmas sales. This is down to two things: a good product range and a strong reputation. This demonstrates their use of two Sales Trigger. FatFace uses Choice Reduction to simplify information and choice, so people don’t suffer from overload and default to their current behaviour. Ted Baker utilises the obvious truth, communicating well-held positive views of the brand’s heritage, to provide people with information that they are unconsciously seeking to confirm their beliefs.

Flourishing retailers are those who invest in understanding the key Sales Triggers that inform the purchasing behaviour of their customer base, and tailor their service output, products, tech and shopping environment accordingly. High-street brands seeking to replicate and sustain such successes can then use these insights to inform their marketing strategy. This differs from sector to sector, but can be clarified by a behavioural science-led approach which can inform marketing and ultimately present an offering and point of difference that will boost retailer longevity.

There’s no quick fix, but with the right sort of changes, the current retail retrenchment doesn’t need to be a terminal issue for the high street. Gaining a deeper understanding through behavioural science of how shoppers could help cure the pressures on the high street.

Facebook, Google, and now also Twitter have all moved to ban cryptocurrency-based adverts on their sites. This means that any ads pertaining to ICO platforms, bitcoin wallets, token sales, crypto-trading etc. will be banned.

Much of this spouts from illicit ads and fraudulent activities. Therefore, there will be some exceptions and policies are still being put together. Analysts currently believe dips in market values and trading of crypto are being caused by the regulatory scrutiny and ban on ads.

This week Finance Monthly hears from BrokerNotes CEO Marcus Taylor on what this means for the crypto market as a whole: “The cryptocurrency market is taking a battering at the moment. It’s being viewed by consumers and big businesses as a wild west environment riddled with risk and instability. Google’s move to ban cryptocurrency ads, following Facebook’s decision last month, will light a fire under the industry to introduce the regulation needed to make the crypto market one consumers can trust in the long term.

“But what about the short-term impact? A recent report shows that 58% of online cryptocurrency traders are millennials and it seems logical that removing advertising from social media channels like YouTube and Facebook should have a major impact on their overall interest in the market. The reality will be different though.

“Although 18-30s represent a huge chunk of the market, 52% identify as experienced traders. The ban will simply serve to protect the ill-informed making bad decisions and bring market stability, rather than put a stranglehold on cryptocurrency trading.”

E-commerce has experienced exponential global growth over the last decade. A wider array of markets has encouraged greater competition and provided more opportunities for online merchants to reap the rewards. However, staying ahead of the competition in such a climate is easier said than done and, if not approached properly, going global can put merchants at risk of falling behind. With this in mind Finance Monthly hears from Ralf Ohlhausen, Business Development Director at PPRO Group, who sets out ten simple steps to help make a success of going global.

1. Assess cross-border market opportunities

Consider the barriers to trade in the regions that interest you, making sure the benefits of doing business in the area outweigh the costs of meeting market needs and expectations. Also, don’t dismiss high-growth markets, such as Vietnam and Poland, which might be relevant for your business, but not the regions that spring to mind when looking for new sales opportunities and cross-border expansion.

2. Know your market and audience

This is important not only in terms of what you sell and to who, but also in terms of the most relevant payment preferences. Online casinos do not accept credit card payments due to the fraud potential, while travel websites need to offer customers the option to pay via credit card due to the high value of the transaction. Sale conversions are linked to the provision of appropriate payment methods – and payment behaviour varies by demographic, just as purchasing behaviour does. In many cultures, younger people are more likely to use non-traditional payment methods, but if your target audience is primarily older, this may not be relevant. Do your research by considering all important marketing segments before you begin to trade.

3. Plan your marketing strategy

If you are new to a region, you need to raise your profile and gain customer trust to convert browsers into buyers. Consider your target market carefully. For example, a German national buying furniture online would rather not pay for a new sofa in advance, but wait for delivery and then pay directly from their account. Think about the behaviour of your target customer and which marketing strategies will resonate most successfully with them. If this is out of your remit, then working with a local marketing partner will provide the necessary knowledge to attract and retain business in the region, supporting long term growth.

4. Plan your market entry

The best marketing plan in the world will fail if not supported by a well thought through market entry strategy. Consider the best way to set-up shop in a new region, as it will differ depending upon your business model and regional knowledge. Do you need to use a partner to begin with, to sell via an online market place, auction site or through an established local vendor? If so, for how long? Or can you go it alone from the start?

5. Consider your market share and positioning

Your current market/s may be crowded or dominated by one or two big names. If you enter an emerging market with a carefully tailored and localised offering, you could grab a large slice of that niche before others do.

6. Review payment methods

When it comes to payment options, decide how much risk you are happy with. Some payment methods may be convenient for customers, but carry a greater burden of chargeback/refund risk or other cost to the vendor. Such risk can often be mitigated, for example by offering less riskier forms of payment, such as SEPA direct debits, for goods below a certain value or to trusted customers. So-called ‘push payments’, which are proactively sent by the client, are less risky in terms of chargeback but their use must be balanced with local preferences. Examples of push payments include giropay in Germany and iDEAL in the Netherlands.

7. Personalise your e-commerce offering for local needs

Make sure customers are only offered the products and payment methods relevant to their location, in a regionally-appropriate format. There are several ways of doing this, including local versions of websites and identification of site visitors by location (e.g. according to their IP address), which then dictates the pages and payment options available. You should offer each visitor at least three, or ideally around six, of the most popular payment options in their location, to maximise your chances of making a sale.

8. Do not leave it too late

Online retailers wanting to take a share of emerging markets need to act now, while the trend towards internationalisation is in its infancy and market niches are free.

9. Compliance matters

As a business, you must comply with a multitude of legal, financial and customs regulations of the markets you trade in. It is therefore crucial to keep abreast of and respond to any regulatory changes in a timely fashion. This generally demands external expertise, particularly as the penalties for non-compliance can be extremely tough.

10. Consider third-party support

When making a foray into a new market or region, it is important to keep on top of commercial and regulatory barriers and implement the best alternative payment methods. This is fundamental to the success of your business expansion. However, very few retailers have sufficient expertise in-house to manage all of these matters optimally, so finding a partner who can support you on your global journey can be the key to success.

While the prospect of ‘going global’ is still new for some, it’s vital for merchants to break into new regions quickly, armed with the best strategy and proposition to seize the opportunities, before the competition swoops in. Only by taking this approach can merchants win new customers and multiply their bottom line, building new revenue streams and expand into new regions. Global success is only a few steps away, and now is the time to go for it.

Like the digitisation of all things, challenges will be faced and there are benefits to reap, but often such progress doesn’t take place because the correlation between the two isn’t a positive or favourable one. Below Gemma Young, CEO and Co-Founder of Settled, discusses with Finance Monthly the future of digital in the property sector.

Property is our most important asset class, it's also our most emotional asset. Therefore, getting our home sale or purchase right is not just a big deal for consumers, it's a big deal for the wider UK economy.

Unlike other industries (travel, music, taxi services to name but a few), the real estate model has clung to its traditional roots. Even with the advent of “online” estate agents now in existence for the majority of this past decade, the industry has been slow to adopt the opportunities a digital revolution presents. It’s therefore unsurprising that we're still seeing the same issues; typical property transactions take over 3 months with 1 in 3 transactions breaking. This drives consumer losses in excess of £250m each year.

Looking forward, is 2018 going to be the year for true transformation? Will ‘proper’ property technology companies make a dent in the things that matter?

What drives transformation?

Technology

The emergence of truly disruptive technologies including artificial intelligence, virtual reality, blockchain and drones all hold their potential disruptive keys to a more progressive future. Not only are technologies proliferating, consumers also have easy access to them from their smartphones.

Empowered individuals

Tech-enabled consumers search for greater transparency, more control and ultimately more progressive solutions to age-old problems. Their quests for modern, digital solutions provide exciting opportunities for change.

Investment

2017 saw the most significant investment in ‘proper’ proptech to date, with a new and forward-focused collective attracting financial backing from VCs and traditional property players.

Regulation

Central and regulatory initiatives represent a particularly exciting shift. The latest Government call for evidence “Improving the home buying and selling process” and the HM Land Registry’s Digital Street scheme look towards a future where technology (including blockchain) will make the transfer of property ownership much more fluid. Such initiatives shine a light on the underlying problems apparent in the UK property market and signal a commitment to a more open and less guarded future.

How does this future look?

As we see this convergence in consumer, regulatory and technology worlds, this more futuristic property market is well within reach. So who wins? The opportunity to embrace and adopt new technology is open to all, however, historically, traditional incumbents have been slow to move in many sectors. They, therefore, get left behind or quite simply, left out. We don’t have to look far to see examples; Blockbuster and HMV are businesses which didn’t, in time, connect to the opportunities of the next generation. As a result, nimble and forward-focused entrants Netflix and Spotify won the respective leading positions in the new world. Much like in the movie and music sectors, forward-focused businesses tend to win in other worlds.

Settled.co.uk is one example of a real estate business that is connecting across these converging elements at quite a unique time in real estate history. Settled’s unique technology has significantly increased the likelihood of completing on a home and has cut the time it takes to sell and buy in half. It presents the hope that, in the future, its technology will enable people to buy and sell properties in moments, not months. This is the kind transformation this sector needs.

The world of banking and financial services is still seen as one of the more conservative sectors of the economy today but if organisations operating across these marketplaces want to drive competitive edge and business advantage in the future, they can no longer afford to ignore the consumer-driven pull towards the use of artificial intelligence (AI). Finance Monthly hears from Russell Bennett, chief technology officer at Fraedom, on the past and future of |AIs journey from consumer to the commercial world.

People are used to these technologies in their everyday lives. They are used to smart software telling them what they want to buy next even before they realise it themselves.

Today, it’s increasingly vital that banks, financial services organisations and financial departments within enterprises are all in touch with these trends. They need to start looking at the benefits that analytics and other predictive technologies can bring them. Their employees and customers will expect them to do so.

The good news is we are starting to see the use of AI growing in the commercial finance environment now. So far, use cases have mainly been around streamlining operational processes.

Take the introduction of digital expenses platforms and integrated payments tools, both of which have the potential to significantly improve a business’s approach to how it manages cash flow. By having an immediate oversight, through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly – and they can go beyond this too. All these services become even more powerful when combined with technologies like machine learning, data analytics and task automation.

We are also seeing growing instances of AI and automation being used to streamline payment processes in banks. Cards can be cancelled, or at least suspended, quickly and easily and without the need to contact the issuing bank, while invoices can also be automated, to streamline business payments. This means businesses can effectively keep hold of money longer and at the same time pay creditors more quickly. Moving beyond straightforward invoice processing, intelligent payments systems can be deployed to maximise this use of company credit lines automatically.

Looking ahead, we see a raft of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

They also have the potential to shape the way that payments are made in the future. One of the hottest topics currently under discussion across the commercial payments sector is the thorny issue of integrated intelligent payments. How can enterprises use the latest available artificial intelligence technology to work out the best possible payment option for each individual transaction?

Accounts payable teams will soon need to be able use payments platforms to assess not only how much working capital they have on their corporate cards and what rates they have on their purchasing cards but also what the most sensible choice for payment method would be for each every payment, be it BACs, wire, cheques or even just old-fashioned accounts payable.

Indeed, there is likely to soon be a case for this kind of technology to effectively ‘fit in’, in process terms, between the accounts payable department, and the payment itself, helping the business decide what makes best sense for them as a payment methodology based on the business rules and existing deals that they have in place today.

Future Prospects

We also see a raft of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

While this area remains in its infancy within the banking and financial services sector, with technology advancing, financial services organisations and the enterprise customers they deal with will in the future will be well placed to make active use of AI that will help clients track not just what they have been spending historically but also to predict what they are likely to spend in the future.

AI will ultimately enable businesses to move from reactive historical reporting to proactive anticipation of likely future trends. We are entering an exciting new age.

Germany is no longer the most popular destination for commercial real estate investment, according to BrickVest’s latest commercial property investment barometer. Formerly the most popular location in Q3 2017, Germany has now fallen in favour among investors behind the UK, US and France.

Germany saw a drop in popularity from 34% to 23% in the last quarter, marking its lowest rating since Q2 2016. The UK, however, rose from 27% to 29% in Q4 2017, managing to sustain its favourability by consistently ranking above 25%.

Both the US and France have also gained popularity with investors, with nearly one in five (19%) preferring the US over other regions and 18% now selecting France as their location of choice (up 4% since Q2 2016).

The Barometer also revealed that the hunt for income ranked highest (38%) as the primary investment objective of BrickVest investors this past quarter. This has risen by 6% from 32% in Q3 2017.

Notably, interest in secondary cities as target markets continues to steadily increase (from 37% in Q3 2017 to 41% by the end of 2017). These include Birmingham, Newcastle, Bristol etc.)

Emmanuel Lumineau, CEO at BrickVest, commented: “Our latest Barometer reveals that Germany is no longer the favoured destination for commercial real estate investment, contrary to its position in Q3 2017. Rather, the UK has once again become the most popular region for our investors.”

“There have been similar changes in other aspects of the data, including the greater emphasis placed on the hunt for income and the growing popularity of secondary cities as target markets. As the year progresses and we continue to conduct our Barometer, it will be interesting to see how the industry adapts to these underlying factors affecting the real estate market.”

(Source: BrickVest)

This new year, there is one question on the lips of business men and women around the UK: “Is now the best time to purchase commercial property?” Thus, commercial property experts, Savoystewart.co.uk, have analysed how the market faired in 2017, and whether 2018 is the ‘peak time’ to buy.

The latest Property Data Report shows that since 2000, the value of the UK’s commercial property stock has grown, considerably, at an average of 3% each year – surprisingly, more than RPI inflation, which grows at an average rate of 2.8%.

Whilst exploring the report, Savoy Stewart found that the commercial property market in the UK in 2016 was valued at a staggering £883 billion, representing 10% of the UK’s net wealth. Investors now own £486 billion worth of commercial property in the UK; with overseas investors owning 29%.

In central London alone, around £2.4 billion was invested in commercial property, resulting in the total turnover for the end of July reaching a substantial £11.5 billion – a 24% increase on the same point a year earlier, in 2016.

July was the strongest month recorded for the City of London since March 2007, owing to the sale of the “Walkie Talkie” building – the UK’s largest single office building deal – which accounted for a staggering 61% of turnover.

Is now the best time to purchase commercial property?

2017 was a much stronger year than many ever anticipated. The economy pleasantly surprised many businesses and forecasters, with unemployment falling to the lowest level since 1975, consumer spending robust, and occupier take-up healthy.

According to Knight Frank, London office take-up is on the rise, despite the impact of Brexit, with demand in the West End at its highest for more than a decade. Savoy Stewart concluded, from their analysis of the research, that the third quarter of 2017 recorded the highest level of office take-up.

A substantial 3.8 million square feet of office space in central London was under offer and was due to close by the end of the year – and it is predicted to be the strongest final quarter since 2014. Office take-up in the West End alone reached 1.65 million square feet.

Trends in 2018

The uncertainty over the UK’s relationship with the EU will continue to cast a shadow over economic growth throughout 2018, resulting in a more cautious outlook amongst investors across all commercial property sectors. As a result, activity may be subdued, but it doesn’t

mean investment will stop any time soon, as investment volumes in the UK commercial property market, this year, are expected to total around £55 billion, per a report by JLL.

Savoy Stewart considered Savills ‘Sector Outlook’ and summarised the six main trends for commercial property in 2018:

1. Non-domestic demand for UK commercial property to remain strong; Due to the weakening of the pound and commercial property yields looking high in comparison to prime European and Asian markets.
2. Now is the best time to add value, and for opportunistic investors; Less competition and falling prices means now is the best opportunity to value-add and for opportunistic investors looking to change short-term income into long-term.
3. Real earnings growth will improve for the retail market; In 2017, a perfect storm of negativity hit retail, but this year will better news. Watch out for good buys in some segments of the commercial property market – don’t just buy because it’s cheap.
4. Brexit: It will become clearer how much, where and when the risks will be. London’s office market shrugged off the worst of the pre-Brexit negativity last year; 2018 will see more balance.
5. 2018 will be the year of ‘alternatives’; The pace of recovery will be dictated predominantly by Brexit; investors this year will be exploring new opportunities in the market.
6. New-tech tools, such as AI, will emerge; Wellness and staff satisfaction will continue to be important for employers, but some businesses will start to look at offsetting the costs of delivering wellness by using artificial intelligence.

Managing Director of Savoystewart.co.uk, Darren Best, discusses his view on commercial property investment in 2018: “As the figures show, despite the uncertainty around Brexit, London is still a pre-eminent city and performing better than Europe in some sectors. The research suggests that now is the best time to purchase commercial property in the UK, now that business confidence is more stable than many expected, which speaks volumes.”

He added: “The performance of the market, last year, surprised many of us. Occupiers are continuing to commit to London commercial property to satisfy their needs, and with the increase in foreign investment in UK commercial property over the last decade and overseas investors now owning 29% of UK commercial properties, it is safe to say 2018 isn’t going to be all doom and gloom – there will be scope for optimism too.”