London's Commercial Property Industry

Because London is among the greatest commercial centres in the world, with many of the world's leading corporations being based - or having significant interests - there, the scope of commercial property in the city is wide. In the suburbs, there are many small and relatively compact commercial centres and business parks, with the occasional high rise development to be found, too, in places like Croydon and Hammersmith. However, it is the City of London and the West End which have the lion's share of commercial property, with huge numbers of office buildings both mid-sized and enormous. Valued in the many billions of pounds, London's commercial property is often regarded as being the envy of every other city in Europe and even other big global cities like New York and Tokyo. All of the globe, there are city authorities which would like to emulate the success of London's business property market.

London Compared to the Rest of the UK

For many years following the global economic crisis, London's commercial property market was seen as something of a safe haven in choppy investment waters. This is largely because the demand for offices with high-speed connectivity continued to grow even during years of recession in other parts of the UK and the world. Because London's economy is so focussed on financial services as well as futures and commodity markets, the demand for commercial property never really went away in the bad times. As a result, many investors bought into London's property industry in a big way from about 2006 to 2012.

According to BNP Paribas Real Estate, part of the French bank which itself has offices in the UK's capital, in 2013 the risk of an overheated market in the city led some investors to spread their risk, even when they continued to buy into the commercial property industry. In short, many simply shifted some of their attention from the capital to other regions in the UK. This has meant that London has been seen as leading a nationwide economy without causing a commercial property bubble which could have been disastrous for the UK economy as a whole. Throughout 2013, rental yields in the capital slowed whilst those in the regions - generally speaking -grew. However, London still leads the way with commercial property rental prices and it will take some significant time indeed for any region to catch up with the country's most important city economy. It is worth noting that, of the investment that was diverted from London in 2013 to the regions, much of it remained close to the capital. According to CBRE data, the southeast of England did the best, but Scotland was notable by its success, too.

London's Commercial Property Squeeze

Although the market boom in London's commercial property sector slowed in 2013 it has by no means stopped. Indeed, many investors are now eyeing a resurgence of growth in the sector. This is largely because there has been such a buoyant residential market over recent years that there has been a squeeze put on commercial property. The phenomenon is down to many people seeking to convert office space into residential dwellings in an effort to reduce their housing costs. With purpose built houses and apartments being at such a premium in the capital, many individuals and property developers have bought office spaces and sought the local authority's permission to convert its use.

According to Colliers International, a little fewer than 800,000 square feet of office spaces were converted into dwellings in 2013 - and this is in the West End alone. With offices being lost to London's businesses, it is hardly surprising that increased competition for space will follow. If that proves to be the case, then investors are likely to return in their droves to the capital's commercial property market, because rental prices will surely rise. There are some 1.5 million square feet of office space in the capital that is in the process of potentially being converted - and this may be the tip of the iceberg. Even with relatively new office developments - such as the Shard - to plug the gap in demand, the squeeze may well lead to continued and sustained growth in the sector. The best office spaces in the capital's prime locations are already seeing increases in rentals and this is good news for anyone with investment interests in commercial property as a whole.

The Retail Sector

London commercial property market is not just about offices - shops and malls have their place, too, after all. According to Cluttons, there have been recent difficulties in the UK's retail property sector, particularly when it comes to town centre and high street shopping. Nonetheless, the capital's retail property market remains robust with a marked resurgence in investors seeking prime retail property. Industry insiders point out the record-breaking lease deals like those achieved in the upmarket shopping thoroughfare of Bond Street in 2013 as a sign of the capital's strength.