Demand for student digs and plush offices helping buoy commercial property 'revival'

Demand for student accommodation and high-quality sustainable office space is fuelling a commercial property 'revival' in Britain, new research claims.

Having grappled with inflationary pressures, a 'punitive tax regime' and new development regulations, commercial real estate is 'turning a corner', exclusive dat from Together shows.

Together said its average customer commercial loan size in the year to date was £252,707.

More than 80 per cent of property professionals, investors and developers surveyed said they believed investing in purpose-built student accommodation over the next five years represented a 'good opportunity.'

Around 18 per cent of those surveyed said they expected to boost their revenue from student accommodation investments by between 11 and 20 per cent in five years.

One in 10 said churning money into student accommodation would help them boost their revenue by between 31 and 40 per cent within the next five years, Together said.

It said in its latest Cities in focus 2025: Commercial property insights report: 'At a time when universities are struggling to manage and government funding has been frozen, the private sector is being increasingly relied on to meet the shortfall.

'Even with a recent dip in student dorm reservations, demand is still high for student accommodation, particularly purpose-built student accommodation.'

Honing in on demand for student accommodation in the city of Manchester, Together said: 'With currently 2.5 students per bed, demand for the vital rental accommodation is set to see further opportunity-seeking investors get involved in the sector.'

It said the average monthly private rent in Manchester currently stands at £1,310, having risen significantly in the last decade or so.

Demand for houses in multiple occupation and co-living spaces was also helping buoy the sector, Together claimed.

Conversely, Together said the most common reason for buy-to-let landlords to quit last year was capital gains tax, at 13.76 per cent, followed by stamp duty changes, rising interest rates and energy efficiency targets costs.

Some landlords also said they had quit in order to move their funds to a 'less volatile market.'

Together's research was conducted by Censuswide, which carried out a survey of 500 commercial property investors, developers and property professionals in April.

The return to office-based working, either hybrid or full-time, looks set to continue over the coming years, Together said.

Four in five industry insiders surveyed said they believed offices represented a strong property investment opportunity over the next five years.

Together said: 'But it's evident that businesses aren't just settling for any office space as we've seen an increasing demand for higher quality stock (Prime and Grade A) whilst the available supply of lower grade premises (Grade B and C) largely goes ignored.

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'Sustainability has become one of the key drivers of this trend as businesses become increasing conscious of their carbon footprint, implementing initiatives to reduce the environmental impact of their operations.'

As well as being high-quality and sustainable, many businesses are on the hunt for new premises which 'cater to hybrid working patterns and lower overheads', the report said.

Demand for modernisation and technology upgrades across existing premises is also strong.

Ryan Etchells, chief commercial officer at Together, said: 'Attracting and retaining the bets talent is also a major reason for businesses moving to higher quality offices.'

Many high-street retailers have been hammered by high business rates and dwindling footfall in recent years. High parking charges imposed by councils are also a major problem.

However, last year the value of retail sales rose 1.4 per cent to £517billion and the number of transactions increased by 0.7 per cent, according to the Office for National Statistics.

Together added: 'And 2025 has started off in similar fashion, with the ONS announcing that sales volumes in the first three months grew by 1.7 per cent when compared to the same months in 2024.

'But the overall outlook remains optimistically cautious as we wait to see the economic effects of National Insurance rises, export tariffs and inflation on consumers and retailers.

'The number of sales made online grew again in 2024. So, we're expecting to see the continued increase in quality logistic and distribution hubs popping up around the country in strategic locations.'

Together said it had seen an increase in the number of property investors considering snapping up 'semi-commercial' property.

Chris Baguley, a managing director at Together's corporate arm, said: 'I'm happy to see how many have thought about investing in a semi-commercial property (94 per cent) as it's a sound way to offset risks and generate multiple incomes from one property.

'At Together, we expect to see a rise in these mixed commercial and residential rental properties in 2025.'

Seventy-nine per cent of industry experts surveyed said they viewed retail shops as a good investment for the next five years.

However, only 32 per cent expect an increase in revenue from these investments over the same timeframe.