London’s private landlord class is shifting from the shaky residential market into the relative stability of commercial property, according to analysis by Shawbrook bank shared with the Evening Standard today.
Months over months of interest rate hikes from the Bank of England and consequently high mortgage rates have exasperated residential market volatility in 2023, causing a rebalancing of portfolios towards longer and more stable commercial leases.
Shawbrook contended that a portfolio mix of residential and commercial property presented the best hedge against volatility.
Retail spaces are particularly attractive, with a significant percentage of investors considering the acquisition of larger shops over smaller shops. Office space and industrial assets follow.
“When compared to residential properties, commercial properties often feature longer-term leases at higher rental yields,” stated Emma Cox, head of real estate at Shawbrook. “Commercial property is a diverse market including a range of industrial, office and retail properties with different dynamics.”
In contrast to Shawbrook’s analysts, housebuilding stocks returned to favour among City analysts recently.
In September, Liberum predicted a 20% total shareholder return in the housebuilding sector for investors willing to ride out short-term sector uncertainty.
It is unsurprising to see retail assets ahead of office assets in Shawbrook’s analysis.
Central London-focused Land Securities Group PLC (LSE:LAND), which has significant exposure to office assets, is out of favour with analysts at the moment, alongside other office-exposed REITS.
LandSec copped a recent downgrade from Morgan Stanley (NYSE:MS), as did other office-exposed stocks including Derwent and British Lang Company plc.