Why Is the Value of Commercial Property Decreasing?

The business world has changed dramatically over the last few years to evolve with shifting factors, such as Covid-19 and the cost-of-living crisis. Let’s find out how this has affected the value of commercial property.

London commercial office

Many businesses are finding new ways to cut back on expenses and whilst the myriad of changes is beneficial to them, they can have a knock-on effect on other industries.

It is predicted that the value of commercial property in the UK is on track to slump by 15%-20% between June 2023 and the end of 2024.

But what exactly is the root cause of commercial property losing value? We will go over the possible factors in this blog.

Why Is Commercial Property Value Decreasing?

1. Increase In Remote Working

For many people, the option to work remotely is desirable, whether that be for some or all of the week, which is known as hybrid working.

Furthermore, this flexible approach is also becoming favourable to a lot of businesses because of the financial benefits it has. So, is this why commercial property is decreasing in value?

First, it is important to recognise that not all businesses have the option to allow employees to work remotely. This may be dependent on the industry and the requirements to complete the job.

However, there are plenty of other businesses that will not be negatively affected by remote working.

For example, lawyers, accountants, call centre agents, secretaries, directors, and managers may find that there is no difference between working in the office or remotely, but since working remotely is the cheaper option for businesses, then it is likely that this will be encouraged.

By May 2022, around 24% of people were hybrid working.

office space

2. Oversupply of Commercial Space

Since more people are working remotely, there is less demand for office space, which is causing an oversupply.

With too many office spaces available on the rental market, the prices are being lowered to attract interest.

Additionally, since Covid-19 many businesses have had to either downsize or close their doors, which means there is less demand for office space, causing an increase in vacant commercial properties.

3. Impact of Interest Rates

Commercial property owners who lease their office spaces are seeing a lower return on investment due to rising interest rates.

The lower return for landlords, combined with the fact that there is less demand for office space, could mean that they have to offer their commercial property at a reduced price.

However, there are advantages to both owning and renting a commercial property, despite the current global challenges.

If you decide to rent, then consider an affordable commercial space that doesn’t tie you into any long-term agreement.

For example, DeVono has a portfolio of serviced and flexible London office spaces, which come fully furnished and with flexible contracts, making it easy for you to downsize or expand, according to your business’s needs.

House prices

4. Growth of E-commerce

More and more businesses are setting up e-commerce websites. This has meant that some retail businesses have decided that it is no longer necessary for them to have a tangible workspace.

However, this is not the case with all retail businesses.

Due to some businesses putting more attention on their online presence, such as their e-commerce websites, it has given them more exposure and, ultimately, more sales.

This has meant they require more commercial space to stock and supply products and keep up with the demand.

5. Increased Popularity of Coworking and Shared Spaces

Lastly, many businesses have moved away from traditional working spaces, such as private offices, and, instead, diverted towards renting coworking or shared spaces.

This has resulted in less demand for individual office space, which, again, may cause landlords to lower their prices and decrease the value of commercial property overall.