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What does 2023 hold for commercial real estate?

What does 2023 hold for commercial real estate?

2023 looks to be a very interesting year in the world of commercial real estate. Alongside an economic outlook that anticipates some big challenges there are also some key legislative changes coming into force in 2023 which will have a far-reaching impact. Here is a brief summary of some of the key predictions and legislative changes expected this year.


  1. Market predictions

Whilst the UK November growth figures exceeded expectations, it is generally accepted that 2023 is likely to see a moderate economic recession. A continuing rise in inflation and interest rates, the cost-of living crisis and the aftermath of COVID-19 all continue to play their parts in this.

Colliers predicts that this year will see “a seesaw of sentiment in [the first half of] 2023 … giving way to greater investor confidence in [the second half of the year] as the inflationary storm passes … and the economy proves more resilient than previously expected. … A short and sharp pricing correction of prime commercial real estate will lead to a material increase in transactional activity in Q2.”.

Avison Young’s 2023 Outlook predicts that retail real estate occupiers will likely see further bankruptcies - although this will provide the opportunity for new entrants to access rarely available prime space at discounted prices. Grade A industry real estate is expected to hold rental values well, alongside good quality office stock. But poorer quality offices will likely suffer a lack of demand and falling rents.


  1. Overseas Entities (Key Date: 1 February 2023)

Any overseas entities that own or lease (for 7 years or more) UK property must register before the 1 February 2023 at Companies House. Overseas entities that fail to register by this date, run the risk of the entity and its officers committing a criminal offence with sanctions ranging from fines of up to £2,500, prison sentences of up to 5 years and restrictions being entered onto the Land Registry title to the property to prevent the entity from selling or leasing the land.

Please see www.bpe.co.uk/news-and-events/are-overseas-entities-in-the-uk-ready-for-the-latest-changes-in-uk-property-law/ for more information.


  1. Energy Efficiency (Key Date: 1 April 2023)

Energy efficiency rules will continue to get tougher on Landlords this year. As of 1 April 2023, not only is the grant of a lease of ‘sub-standard’ commercial property unlawful, but so is continuing to let a sub-standard property. To comply with the Minimum Energy Efficiency Standards, a commercial property must have an energy efficiency rating of an E or above (or have a registered exemption). If it doesn’t, the Landlord may face of penalty of up to 20% of the property’s rateable value.

Longer term, a further tightening of these rules is expected. By 2027, we are likely to see a minimum standard of a C, and by 2030, a B.


  1. Business Rates Revaluation (Key Date: 1 April 2023)

As of 1 April 2023, business rates will be revalued based on property values as at 1 April 2021. It is widely expected that rateable values for retailers will see a large decrease but that offices and logistics will bear an increase.


  1. A lesser burden for Charities disposing of land (Expected Spring 2023)

 Sections 17 to 23 of the Charities Act 2022 are expected to come into force in the Spring and will simplify the process of selling or leasing charity-owned land. This includes allowing Trustees more choice on the disposal of charity land by permitting them to take advice from a greater selection of surveyors. Previously, the surveyor would need to be a member of the Royal Institution of Chartered Surveyors (RICS) but this requirement has been removed. It is hoped that reducing the criteria for advisors will mean that costs and time involved for charities will be reduced.


  1. Building Safety Levy (Expected September 2023)

It is expected that, in early autumn of this year, a new ‘Building Safety Levy’ will be imposed on residential property developers. The aim of the levy (to be implemented under section 57 of the Building Safety Act 2002) is to ensure that the burden of paying for fixing historic building safety defects does not fall on taxpayers or leaseholders.

It is proposed that some bodies will be exempt from paying the levy including Affordable Homes, NHS Hospitals and Residential Care Homes. Additionally, a consultation is considering on what basis the levy should be charged i.e. on a ‘per dwelling’ or ‘per square meter basis’ and how often the levy would be reviewed.

The levy is currently under consultation until 7 February 2023 and further details are expected to be published following the end of the consultation period.


  1. Empty Shop Auctions

A new bill (the Levelling-up and Regeneration Bill) is currently being considered by Parliament and the House of Lords in the hope of revitalising town centres and the local high street and decreasing the amount of empty retail shops, offices, pubs & restaurants and light industrial premises.

Part 8 of the bill will introduce a compulsory auction regime for commercial premises which are:

  • located within a designated high street or town centre;
  • suitable for ‘high street’ use; and
  • the premises, if occupied for a high street use, would be beneficial to the local economy, society and environment.

It is proposed that Local Authorities are given power to grant a lease of a vacant premises, on behalf of the Landlord, after inviting bids through an auction process from interested occupiers. The premises must be unoccupied and have been vacant for the whole of the previous year or for at least 366 days out of the previous two years.

It is expected that this legislation will come into force during the course of this year.  

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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