Changes to society in the aftermath of Covid-19 continue to influence the scale and speed of the economic and real estate market recovery in the UK and elsewhere.  Flexibility in work location patterns and changing patterns around customer product demand have led to a requirement for high-quality but adaptable commercial properties.

Has monetary policy impacted the market?

Monetary policy has an impact on real estate markets.  Rising interest rates have accelerated investor moves into liquid assets.  At the same time, as interest rates remain lower than the rate of inflation, the cost of borrowing in real terms is not materially affected. There is a tension therefore between the potential for long-term real asset growth linked to inflation and the short-term return on liquidity that is available in the financial markets due to the increase in interest rates.

It is not clear yet whether inflation has peaked meaning that interest rate rises are near their top. Once that level is reached it is likely that commercial property activity will be reinvigorated across the market with the potential for opportunistic acquisition at a discount becoming a feature of this market - albeit caution persists.

What trends are evident in the London office market?

By way of a practical example, in London’s Canary Wharf HSBC is exiting after the bank decided to leave in favour of smaller office space in the City of London.  The 1.1m square foot building is in need of significant upgrades to meet energy efficiency rules.  Market reports indicate that Moodys Corp. at Canary Wharf has apparently appointed Cushman & Wakefield plc to advise on options for new premises that would likely be a third smaller than its existing base.  According to further market reports, 20 Canada Square in Canary Wharf is in the hands of receivers with substantial upgrade work estimated at £120m.

Can rental yields be assured?

The bigger the building, the higher the cost of modernising.  Purchasers will need to consider carefully the cost of upgrades against the rental yield and look to lock in forward purchase agreements from tenants prior to committing to upgrades in order to crystallise future rental yields. This can take some time to achieve in fluctuating markets and would need to be priced into any financing arrangements.

How is the London office market evolving?

Banks and other prime tenants are looking to make going to the office more desirable as part of a post-pandemic reset and they are opting for smaller Grade A sites in locations closer to shops and restaurants.

The City of London traditionally focussed on office space.  However, more recently it has been adding more restaurants and now aims to remake older buildings into hotels.

In Mayfair a few kilometres away in London’s West End, Blackstone Asset Management last year signed a lease on an entire new development on Berkeley Square before construction work had even started.

What trends are evident in the UK industrial real estate market?

International transport and logistics and manufacturing clients are showing an increasing interest in tax-incentivised industrial land such as freeport zones.  These sites, located throughout the UK from Hull in the North to East Midlands in the centre and Thames Gateway in the south amongst others, offer a number of advantages to international trade.  It is possible for freeport zone investor tenants to defer paying tax duty on imports until the product leaves the freeport. There is also the opportunity to enable the assembly of parts within the freeport and only pay customs duty on the finished item. This is beneficial where component parts may attract a higher duty on import dispatch than on a final assembled product.  Additional tax benefits of such sites include 100% stamp duty land tax relief on qualifying land and buildings and in respect of business rates, 100% relief is available until September 2026 for a period of five years from the transaction completion date.

What advantages do bonded warehouses offer?

Aside from specific freeport zones, tax-driven industrial clients may also consider bonded warehouses. The difference between a bonded warehouse and a freeport is that goods held in a bonded warehouse are legally within the customs territory of the host country whereas products held in freeports are outside the customs territory.  In the case of a bonded warehouse, products enjoy deferred VAT and customs duty payments until the goods are sold or removed.  This can improve cash flow for businesses.  If goods are to be exported, no duty will be payable in the UK and the duty is payable in the destination country avoiding double payments.   For imported goods, the benefit is that products can be sold according to demand with duty paid only on actual market supply rather than on a bulk cargo on import.

Are international companies showing interest in other industrial land?

Freeport industrial land and bonded warehouses can be distinguished from the standard distribution centres (warehouses) throughout the UK which service the supply chain requirements of producers involved in the packing and shipping of products to customers.  Post Brexit, this market is increasingly buoyed by activity from domestic and international consumer goods brands. We are seeing growing demand from our international clients for the storage and distribution of wholesale and consumer products in the South East, West Midlands and East Midlands during the past 12 months. Such clients are seeking Grade A-compliant premises with racking, freezer floors and packing facilities to enable efficient receipt storage and dispatch of products to their customer base.

What trends are evident in the UK retail real estate market?

We are seeing continuing growth in commercial premises accommodating food retail (restaurant, shops and wholesale) from our international clients.  We have seen more interest and demand for commercial premises catering for the marketing of high-end luxury retail goods with a sustainable element.   A number of international brands remain acquisitive in the UK market and are aligning their interest with the current urban planning trends that are focussing on mixed-use commercial space (office, residential and retail developments) in urban commercial centres.

What trends are evident in the UK leisure real estate market?

The impact of inflationary cost pressures and labour shortages continue to inform the hotel and leisure sector in the UK post-pandemic. This is leading to market rationalisation in the form of sales and acquisitions of hotel property assets particularly in the London area.  However, London should continue to benefit from the weak pound and increase in tourism.  Hoteliers are looking at the most cost-effective financing solutions when investing and refinancing and we are providing legal support on such transactions.  This may involve parcelling portfolios to meet loan-to-value ratios with sufficient asset valuation headroom to withstand fluctuating markets in the near term.

Where does the future lie?

UK real estate is currently seeking to embrace innovation, sustainable development and diversification facilitating a robust and adaptable industry for the future. As part of a general trend, urban planning is shifting towards mixed-use spaces that combine residential retail leisure and offices alongside public services.  At the same time, the adjusting supply chain and structural economic impacts post-pandemic are enabling the growth of an industrial warehouse sector that is facilitating the “just in case” supply model in place of the “just in time” model of the pre-pandemic era.

How 3CS can help

Our team of property lawyers and consultants have both domestic and international expertise and offer a full range of property law services. For further information or help with any legal commercial or residential property matter, please get in touch with your usual 3CS contact.


Fionnuala Nolan


3CS Corporate Solicitors

Providing solutions, not just legal advice
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3CS is based in offices in the heart of London's financial district.The nearest underground stations are Liverpool Street, Moorgate and Bank - all within 5 minutes’ walking distance.​

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Registered in England & Wales | Registered office is 60 Moorgate, London, EC2R 6EJ
3CS Corporate Solicitors Ltd is registered under the number 08198795
3CS Corporate Solicitors Ltd is a Solicitors Practice, authorised and regulated by the Solicitors Regulation Authority with number 597935

Registered in England & Wales | Registered office is 60 Moorgate, London, EC2R 6EJ
3CS Corporate Solicitors Ltd is registered under the number 08198795
3CS Corporate Solicitors Ltd is a Solicitors Practice, authorised and regulated by the Solicitors Regulation Authority with number 597935