Occupier demand for commercial property in Wales fell in Q2 after rising through the first quarter of the year according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor as the industrial sector continues to outperform both office and retail.
A net balance of -17% of surveyors in Wales reported that occupier demand fell at all-sector level through the second quarter of the year. Looking at the subsectors, demand for both office and retail space was reported to have declined, with net balances of -25% and -27% respectively. Occupier demand for industrial space was noted to have fallen flat through Q2.
At all-sector level, a net balance of -19% of surveyors in Wales reported a fall in investment enquiries. Investment enquiries were up in the industrial sector, with a net balance of 6% of respondents noting an increase. A net balance of -36% of survey respondents noted a fall in demand from investors, and -27% reported a fall for office space.
Capital values are expected to fall in the short term, with a net balance of -13% anticipating a decline over the next three months at all sector level, down from 7% in Q1. Looking at the subsectors, industrial space is the only subsector in which capital values are expected to rise with a net balance of 27% anticipating an increase. A net balance of -23% of Welsh respondents expect a fall in retail space and -43% in office space.
On the 12-month horizon, surveyors in Wales appear more upbeat with a net balance of 13% of respondents anticipating a rise in capital value expectations over the next year at all-sector level. Surveyors in Wales anticipate that capital values for both office and industrial space will rise over the next year, 8% and 47% respectively whilst retail space is expected to fall (a net balance of -17%).
Chris Sutton of Sutton Consulting Ltd in Cardiff commented: “The industrial market remains strong, particularly along the M4 corridor with quoting rents of £9.00+psf on St Modwen Park, Newport for Grade A large units. On the opposite side of Newport, KLA has developed a 220,000 sq ft production / R&D facility at Imperial Park. Other bright spots are the data and energy sectors. In Cardiff, Grade A offices remain in demand as tenants readjust their occupational footprints to increased tech and new working practices.”
Haydn Thomas of Hutchings &| Thomas property consultants, in Newport added: “The South Wales commercial property market remains fairly static, with some sectors such as industrial space and roadside drive thru doing well. Lack of supply of front door owner occupier office space remains an issue especially from 3-5,000 sq ft. Demand for office space with larger floor plates remains low; Cardiff City may be bucking this trend slightly. Retails in city centres remains a problem, however, some smaller market towns seem to be doing well in terms of occupancy.”
Commenting on the UK picture, RICS Senior Economist, Tarrant Parsons, says: “Overall activity remains relatively subdued across the UK commercial property market, with conditions seen as generally flat in Q2. That said, respondents now feel the market is moving towards the early stages of an upturn following a challenging couple of years.
“The near-term path for monetary policy will be key to the outlook for CRE investment going forward, although hopes of an immediate easing in lending rates may be optimistic given still sticky services inflation (even if the headline rate has returned to target). Away from the cyclical picture, a strong structural trend that continues is the outperformance of prime office markets compared their struggling secondary counterparts. In particular, prime offices across London are seen delivering solid capital value and rental income returns over the coming twelve months.”
