Commercial real estate has been a beacon of stability for investors, according to a recent study by APRAO. This analysis, delving into government property transaction data, highlights how non-residential properties are outperforming their residential counterparts in terms of market resilience.

Overview of Market Trends

The property market has seen its fair share of turbulence, influenced heavily by escalating borrowing costs and broad economic uncertainty. APRAO’s latest analysis reveals that overall, property transactions have dipped across the board. However, the decline has been notably steeper in the residential sector compared to non-residential properties.

In the first quarter of 2024, there were 255,570 property transactions recorded, marking a 13.1% decrease from the previous quarter and a 7.4% fall from the first quarter of the previous year. This represents the lowest quarterly total since the early 2022, following a relentless series of 14 interest rate hikes beginning in December 2021.

Sector-Specific Insights

Despite these challenging conditions, the non-residential sector has shown a remarkable resilience:

• Overall Impact: While residential transactions plummeted by 18% or more in areas like England and Wales, non-residential transactions saw a much smaller reduction, with declines of just 4.7% and 3.7% respectively in these regions.
• Proportion of Transactions: Non-residential transactions, although smaller in volume, accounted for 11.2% of all market activity—the highest since early 2022.
• Comparative Decline: The non-residential sector experienced a mere 5% year-on-year decrease in transactions, compared to a much sharper 17.8% drop in the residential sector.

Regional Breakdown

The pattern of resilience in non-residential properties is consistent across most of the UK, with the exception of Scotland, where both residential and non-residential sectors have seen similar rates of decline.

Daniel Norman, CEO of APRAO, reflects on the market dynamics: “Since the start of interest rate hikes in December 2021, both sectors have faced significant challenges. However, the non-residential sector has not only weathered the storm but also shown stronger returns and greater security thanks to longer contract lengths. These attributes make non-residential properties particularly appealing in uncertain times.”