Will the UK commercial property sector slow down if we hit a recession?

The commercial property sector has an important role to play in the UK economy, not only in terms of a direct and indirect output generator, but also in terms of helping retailers, financial services and other businesses boost production.

But what if the UK economy were hit by a recession? Will the commercial sector continue to thrive?

What happens to commercial property in the midst of a recession?

If you think back to the summer of 2007, a large number of commercial property investors, were searching for property that would provide at least an above average return-on- investment. Property values were on the rise, and they wanted in on the action.

However, what they were unaware of was, that they would be investing in property on the verge of a 6-year bull market. Sure enough, by December 2007, the Great Recession had built enough momentum to induce the property market into an irrecoverable nosedive.

Well, it happened again in March 2020 after, ironically, a persistent 10-year ‘up-seller’s market’. Things went from bad to worse when the pandemic shook up the world, and it seemed that property investors, buyers, sellers, and lenders had forgotten that a recession was still a ‘thing’.

So, what happens to commercial property when a recession hits?

Commercial property values are not affected the same way as residential property during a recession. Residential values tend to react to an abundant housing supply and lacklustre demand. As homeowners are deprived of their usual incomes, they fall behind on mortgage payments, which means that too many houses end up on the ‘for sale’ market, along with too many properties being sold at reduced prices.

On the other hand, commercial property values play out differently because they are primarily based on NOI or ‘net operating income’ – this is made up of rental income and expenses. In the midst of a recession, most commercial properties see reduced occupancy, and late payments. Furthermore, no amount of paying tenants can help lower NOI. This actually reduces the income approach in a commercial appraisal, hence, lowering the property’s value.

Commercial property outlook in a recession scenario

It’s probably safe to say that the chances of a coronavirus-induced recession occurring again are probably 1-in-100 years. But typically, recessions occur when businesses expand at unusually (and unreasonably) high rates, which leads to a correction in all financial markets.

In order to avoid purchasing commercial property at the top of the market and overpaying for it, one must identify the real estate market cycle phase they are in – the recession phase, recovery phase, expansion phase, and so on – all the while making sure that there is extra NOI to get through a recession and maintain the property’s value.

Making property management easier is The Inspection Manager (TIM) an easy-to-use app used by property and facilities manager’s, helping to streamline the inspection process, while completely eliminating the need for paperwork.

Try it out for yourself with our 
FREE 30-day trial. Discover how technology can become your new best friend https://www.theinspectionmanager.co.uk/free-trial/

The trial includes full access to all 35+ templates.

Add your logo / branding and start producing usable reports from the get-go!


No card or bank details required & NO obligation.

Related News

How to streamline processes in Property and Facilities Management

How to streamline processes in Property and Facilities Management

Data standardisation refers to using consistent methods for collecting data, although this is a very basic and somewhat generic description of what it truly is. If we delve in deeper, data standardisation is the process used for transforming data to fit a constrained and predefined set of values – ultimately, relying on uniformity to improve efficiencies.

The importance of Data Standardisation in the Property & FM sectors

The importance of Data Standardisation in the Property & FM sectors

Data standardisation refers to using consistent methods for collecting data, although this is a very basic and somewhat generic description of what it truly is. If we delve in deeper, data standardisation is the process used for transforming data to fit a constrained and predefined set of values – ultimately, relying on uniformity to improve efficiencies.

property audit checklist

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.

Transform how you acquire, manage, operate and experience space with technology

There’s no escaping technology and the impact it has had on our lives, making everything from ordering something online to power up our home appliances from several miles away really easy. Technology has also fundamentally changed how landlords and letting agencies, for example, buy, manage, and operate spaces – making lives easier for tech-savvy homeowners and demanding tenants alike.

Should Housing Inspections be in hands of Local Councils?

Should Housing Inspections be in hands of Local Councils?

The public at large believes that housing inspections should be in the hands of local councils – at least, according to this survey. Conducted by the APSE (Association for Public Service Excellence) reported that 59% of the public are in favour of Building Inspections by local councils, while 23.4% support private inspections.

Making commercial properties more sustainable

Making commercial properties more sustainable

In 2021, UK commercial properties contributed on average, 20% of carbon emissions, according to a report published by the Committee on Climate Change. Furthermore, in larger cities, including London, commercial buildings were responsible for more than 70% of the city’s emissions on a whole.

Is FM Technology Your New Best Friend?

Is FM Technology Your New Best Friend?

Technology can transform facilities management (FM), helping you save on costs and drive efficiencies. For many businesses and organisations, their three main expenses are: Employees, Technology, Facilities. However, in the rush to recruit talent and keep up with new technology, organisations can end up overlooking their facilities.

Top