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Commercial real estate reflections - history repeats itself, sort of..

Harry Iles
13-Dec-2022 11:48:42

So, we are nearly there: the time of the year that all property professionals dread. The turkey bought, the presents wrapped, the wine rack as stocked as it is ever going to be. You invite neighbours over and attend parties with family and friends. Christmas jumpers, pigs in blankets and the smell of mulled wine – you are in your very own Waitrose advert. Sure enough, one by one they pick you off, lips stained red by excessive mulled wine, shedding mince pie crumbs from their overly woolly jumpers for the packed kitchen setting...

"What do you think about the market? Is it a good time to buy? Is it a good time to sell?" And then the real reason they have singled you out – "What do you think my place is worth?"

Such encounters are of course, not just for Christmas. All property professionals get asked these questions, year-round. Quantity surveyors, building surveyors, investment agents, office agents, industrial developers, anyone paying their RICS[1] subscription - this is the cross we all must bear.

This year, however, there are a lot of interesting factors at play. Everyone knows that we are now in a recession and things are likely to get worse before they get better. The key is to find the opportunities when a recession comes along – on the long-term average, every 6 years and lasting 10 months. I was recently at a talk given by the TV historian Dan Snow, hosted by Standard Bank at the exquisite Spencer House in London. The premise of Dan’s talk was "What we can learn from history?" My takeaway - "History is not a perfect blueprint, but it’s the best thing we have." Wise words indeed Dan. With that in mind, I thought I would list some of my own observations from the last major recession, the "Credit Crunch" in 2008 and see what clues that might give us to identify areas of opportunity. I am going to focus mainly on the office sector but will touch on other sectors from a macro perspective. Let’s split real estate into 3 categories: occupiers (users), investors and developers.


These are the life blood of our industry. Without people willing and able to lease space, there is no investment market. This one area has seen seismic change over the last decade, accelerated more recently by Covid lockdowns and the resulting Zoomification of meetings. Where occupiers go, investors and developers follow. Post-2008, there was a big push by corporates to reduce office space and trends such as "hot-desking" and "flexi-working" accelerated. These coincided with the appearance of lockers in the office, which made us feel like we were being sent back to school.

This time around will be different – costs will still be scrutinised; however, the main problem now is how to attract the workforce back into the office. Due to work-from-home practices, companies have downsized their office space and upgraded their office specification. Better connected (internet and transport), better furnished, with better coffee, and some even fitted with facilities such as gyms and games rooms – offices were transformed. They had to be, to attract employees. The problem now is that the efficiency has already been "driven"- we already all hot-desk. The trend of enticing employees back with incentives will continue and costs will have to be saved by automation and increasing use of technology – with implications for redundancies.

This onus on attracting and retaining staff can be seen across all sectors, however the importance of location might not be so relevant for offices. The "experience" of the office is key, the postcode, less so.

Industrial occupiers/ logistics firms will continue to thrive with online sales and for them, location continues to be more relevant than ever

Retail is tough. Retailers are increasingly looking at their Google ranking ahead of their postcode. Watch out for disruptors like Sook – they rent physical “pop-up” shop space for the day or half day. With the use of flat screens mounted around the shop, a retailer can "fit out" the store for the duration of their occupation. If you see lines of young teenagers on Oxford Street – chances are they’re going there – not after American candy…

Cheaper goods do well in a recession, so expect to see the discount retail sector continue its forward march which has seen Aldi and Lidl win market share since 2008.


The phrase “we are living in uncertain times” is certainly one that could be repeatedly applied to the crises of the past 15 years, but in the context of the commercial real estate world, it is remarkably apt. The one constant, the one fundamental to property investment over the last century and before: "location, location, location" - the tricolon that underpins the fundamentals of all good property investment, has in one fell swoop been rocked to its core in the office and retail world.

Retail is tough everywhere, but Covid measures mean that older generations are now well versed in internet shopping, so the demise of the high street shop will continue, despite the best efforts of Sook, etc. As more shops become vacant, there will be pressure on planning legislation to move with the times – I would expect to see Use Class E[2] powers extended to reduce the blight of vacant shops. When that happens, retail property prices will pick up.

During the last recession the mantra was – flight to quality. B and C locations suffered the most with property price drops of 40% in some cases. This will also be the case this time around, however, as I mentioned earlier, physical location is less important than internet search listing. Firms want to make sure their staff are happy to come back to the office and that means offices have to be appealing. Secondary city locations with contemporary fit outs, excellent internet, good showers and bike stores should do better this time around. My advice: spend your money on capex, don’t focus too much on prime post codes.

Patient capital can expect to see some good opportunities, with some already manifesting as pressured vendors seek to get ahead of the fire sales that will only increase in number putting downward pressure on prices.


Times have been tough with supply chains impacted by the 2021 Suez Canal obstruction, Covid and the war in Ukraine.

Build costs are finally coming down, just like last time, however, interest rates going up means unless you’re building with cash resources, things are going to get expensive. Any residential development, unless at the luxury end, will struggle as mortgages get a lot more expensive.

In 2008 interest rates remained low, so forced selling was contained. Banks closed their books on new loans and could kick the can down the road with existing loans due to the low cost of borrowing. This time, the cost of borrowing is going to focus minds. Borrowers will have to act quickly to exit any untenable positions. Similarly, banks will be forced to take back a lot of property and look to sell quickly. That means only one thing - substantial price reductions.

Opportunities – for most, it will be a time to amass land and gain planning permission.

For more information on how Sterling Technology can help make your next real estate deal a great deal better, please complete the form below or contact us.

[1] Royal Institution of Chartered Surveyors.
[2] Use Class E for commercial property allows for a variety of uses to reflect changing retail needs. It allows a building to be used flexibly by having a number of uses taking place simultaneously or by allowing different uses to take place at different times of the day. The main benefit is that changes to another use, or a mix of uses, within this class will not require planning permission, thus allowing buildings on the high street to be more easily repurposed.

Harry Iles is a Sterling board advisor and commercial real estate investor, developer and asset manager.


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