Vacant office buildings are rising in value, buoyed by strong demand for space and investor interest.
The trend is highlighted by property advisors GVA Grimley at a time when attractive yields and healthy rental growth have helped to make commercial property one of the strongest-performing investment options.
At the same time, recent years have seen unprecedented levels of demand – especially in the offices sector.
It’s due to the sheer weight of this demand, says Carl Potter, Birmingham offices partner and national head of business parks for GVA Grimley, that there has been a significant step change in terms of what constitutes a good investment.
And one of the most noticeable effects of this trend has been the rise in value of vacant office buildings.
Traditionally, compared to buildings with existing tenants and the accompanying rental revenue they bring, vacant buildings have been regarded in almost all instances as less desirable by investors.
But this is no longer always the case, as Mr Potter explains.
"In the past, the office market has been driven by occupier demand, with leases put in place to drive value and profit to those implementing development," he says.
"More recently, however, the phenomenal demand for commercial property has shifted the emphasis towards owners, who are benefiting from rising capital values without occupier demand running alongside.
"As a result, we are seeing untenanted properties achieving values which would have been virtually unheard of six to 12 months ago – particularly in locations such as Solihull and East Birmingham, which have traditionally been strong areas but have suffered from a lack of demand post March 2000."
The growth in capital values for these types of properties is also based on anticipated uplifts in tenant demand and consequential rental growth.
With the demand for commercial property unlikely to abate any time soon, owners are confident that their investments will continue to pay dividends well into the future.
The market is also being fuelled at the smaller end by the ability of individuals to place commercial buildings into Self-Invested Personal Pensions.
"The government’s U-turn on permitting residential property to be placed into Sipps has added to demand, steering money and finance towards the commercial sector," says Mr Potter.
"With excellent returns on commercial property of all kinds, individuals looking to secure their retirement funds are just as likely to consider untenanted buildings as any other."
So vacant buildings – once regarded as the white elephants of the property industry – have now become a much more viable proposition for investors. "Their rise in value is testament to the exceptional levels of demand the UK property industry is currently experiencing and which will surely continue for the foreseeable future," says Mr Potter.