Challenges facing commercial landlords and tenants

The previous year was a roller coaster for the commercial property sector, with both landlords and tenants facing unique challenges. It looks like 2023 is also going to be a challenging year for landlords – with the higher increased rates and Section 21 changes, for instance – and for tenants as well, who are finding it to keep up with rental demands owing to the inflation and the current cost-of-living crisis.

Challenges faced by commercial landlords

Higher mortgage rates

Most likely the biggest challenge UK landlords are facing at the moment is rising mortgage rates. Since the controversial Liz Truss September budget in 2022, interest rates have skyrocketed, leading to higher mortgage costs for both residential and commercial landlords.

The average 2-year fixed rate for a buy-to-let mortgage in November 2022 was 6.5%, which was just 2.89% in January 2021. Increased interest rates will pose a problem for landlords looking to buy new commercial properties and those refinancing existing ones in their portfolios.

Furthermore, there’s been a decrease in the number of BTL mortgage products currently available, giving fewer financing or re-financing options to landlords.

Changes to capital gains tax allowance

As per the Autumn statement 2022 announcement, changes to property capital gains tax (CGT) means that landlords will likely pay more in CGT if they wish to sell any of their properties in 2023.

The CGT allowance is £12,300, as of January 2023, meaning that any amount up to this made in a sale will not be taxed. However, in April 2023, this amount will be cut down to £6,000, and then £3,000 in 2024.

Changes to Section 21

At the moment, landlords are allowed to serve a Section 21 notice to their tenants if they wish to evict them from their property, without having to go through court. Landlords also need not give any reason for regaining possession of their property, which is why it was referred to as ‘no-fault evictions’.

However, the Renters Reform Bill will effectively abolish Section 21, which means landlords much use a Section 8 notice instead, which does require landlords to give a reason for regaining possession of their property – such as antisocial behaviour or rent arrears, where possession of the property is not guaranteed, as it was with Section 21.

Section 21 has not been abolished yet although it’s fair to say that it will be sometime this year.

Increase in defaulting tenants

It has been estimated that the total number of rent arrears in 2023 will increase compared to the previous years, owing to the ongoing cost-of-living crisis mainly.

Challenges faced by commercial tenants

Commercial tenants are most worried about rising rents in 2023. With the nation already batting high inflation and the current cost-of-living crisis, the biggest fear for tenants has been keeping up with rental demands.

The average rent being paid in England, for example, is £1,071 on average, which is an 8.7% rise compared to last year.

Among the high cost of living and uncertain economy, it pays to use a digital tool for property inspections and reports, effectively cutting down the administration for housing associations as well as property & facilities managers by 50% in time.

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