Property Investors Pivot to Non-Residential Assets Amid Economic Fluctuations

As the UK grapples with economic uncertainty and rising borrowing costs, property investors are increasingly turning to non-residential properties as a safer bet, according to new research from APRAO.

Resilience in Non-Residential Investments
The latest analysis by APRAO, utilising government data on property transactions, highlights a distinct trend: non-residential property markets have demonstrated remarkable resilience compared to their residential counterparts. Over the past year, non-residential transaction levels have seen a modest decrease of just 5%, in stark contrast to the residential sector, which experienced an 18% drop. This divergence is particularly notable given the context of fourteen consecutive interest rate hikes since December 2021.

Market Dynamics
During the first quarter of 2024, the UK witnessed 255,570 property transactions, marking a 13.1% decrease from the previous quarter and a 7.4% decline year-on-year. This period recorded the lowest quarterly transaction total since the early days of 2022. Despite the downturn, non-residential transactions constituted 11.2% of the market activity, the highest share since the start of 2022, indicating a growing investor preference for these types of assets.

Regional and Sectoral Trends
The impact of economic pressures has varied across regions and sectors. In England and Wales, residential sales plummeted by over 18% in the first quarter of 2024, whereas non-residential sales saw much smaller declines of 4.7% and 3.7%, respectively. Scotland presented a more unified trend, with residential and non-residential sales dropping by 9.5% and 8.5% respectively. Daniel Norman, CEO of APRAO, remarked on the findings, “Since interest rates started to climb in December 2021, we saw fourteen consecutive hikes which cultivated a great deal of market uncertainty… However, this reduction in market activity has been less pronounced across the non-residential sector, as while the initial investment requirement may be larger, the non-resi sector provides stronger returns and a greater degree of security in terms of longer contract lengths.”

These insights underscore the shifting dynamics within the UK property market, with investors increasingly seeking the relative stability and higher yields offered by non-residential properties during times of economic turbulence.