The UK’s commercial property market is showing signs of improvement following the challenges posed by the pandemic and the subsequent shift to remote working. However, significant challenges remain, particularly around underinsurance and property value fluctuations, which are creating risks for property owners. Ives & Co, leading solicitors serving Nottingham and Kent, can assist with commercial property.
A recent report highlights that while the UK is recovering faster than other European markets, such as Germany and France, the road ahead remains uncertain. One of the most pressing issues is underinsurance, which affects nearly half (46%) of commercial properties in the UK, according to research. This is not due to negligence, but rather a consequence of rising building costs and labour shortages. Since 2020, the cost of building materials has risen by 36%, and labour costs by 7% in the past year, making it difficult for property owners to maintain adequate insurance coverage.
Additionally, the report points out that many commercial property owners have neglected regular valuations, with 37% of claims managers attributing underinsurance to this oversight. Ideally, property valuations should occur every three years to ensure accurate coverage. As a result of this neglect, 67% of claims managers report having had to reduce or reject claims, and 62% believe the problem has worsened over the past five years.
While the risks are significant, there are positive signs in the market. The UK’s commercial property sector has seen a 7% increase in property deals, with €26 billion worth of transactions recorded in the first half of 2024. Political stability following the general election and stronger economic prospects have contributed to this recovery. The industrial sector, particularly in logistics, has remained resilient. Although demand for larger distribution centres has slowed, there is strong demand for “last-mile” delivery units in urban areas, essential for the growing e-commerce sector. Industrial rental values have grown by 6.3% as of July 2024, outpacing general inflation.
In conclusion, while the UK’s commercial property market is on the road to recovery, it’s crucial for property owners to address underinsurance and ensure regular valuations to avoid financial risk. The sector is likely to see continued growth, especially in logistics and urban delivery units, but staying proactive about these risks is essential for long-term stability.
