Occupier demand for commercial property in Wales fell flat through Q3 according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor, which may be weighing on surveyors’ outlook, which is less optimistic than reported previously.
Whilst overall occupier demand is flat, there is variation in the sub-sectors. Occupier demand for industrial space rose (a net balances 25%), demand for office space was reported to have fallen flat, and a net balance of -23% of Welsh respondents reported that demand for retail space had fallen.
Looking at overall investor demand, a net balance of -8% of respondents in Wales reported a fall. Whilst this balance remains in negative territory, it is an improvement on -19% in the previous quarter. Looking at the subsectors, again, industrial spaces continues to perform better than office and retail. A net balance of 12% of respondents report that investor enquiries for industrial space rose, whilst both office and rental space saw declines, with net balances of -13% and -21% respectively. Whilst both remain in negative territory, both subsectors are less negative than seen in Q2.
Regarding capital value expectations, on the three-month outlook, a net balance of -9% of respondents expect capital values to fall over the next quarter, the second consecutive quarter this balance has remained negative. A net balance of 13% of respondents anticipate that capital values for industrial space will rise over the next three months, whilst net balances for both retail (-33%) and office (-8%) space remain muted. The 12-month picture looks more positive, as a net balance of 7% of Welsh surveyors expect capital values to rise over the next year.
With regard to rental expectations, a net balance of -14% of surveyors in Wales expects rents to fall over the next quarter. A net balance of 25% of Welsh respondents anticipate that rents will rise for industrial space, whilst rents for office and retail space are expected to fall (net balances of -21% and -46% respectively). On a 12-month horizon, surveyors anticipate that rents will rise at all-sector level with 9% of respondents expecting an increase.
Chris Sutton of Sutton Consulting Ltd in Cardiff commented: “The usual summer slowdown in transactions was extended this year by the election. The budget provides food for thought for certain investors and solicitors have been exceptionally busy completing transactions before this deadline. The industrial sector continues to lead the market with healthy rental growth along the M4 corridor. The office market is focussed upon higher quality buildings with personality, for second hand Grade B space the challenges are greater.”
Andrew Morgan FRICS, of Morgan and Davies in Lampeter added: “Many delaying key decisions still. Wages at current levels remain a key brake on expansions and new entrants. The budget in October will influence the future market markedly more than budgets have done in recent years we suspect. Many commercial real estate owners and investors await the impact thereof with caution in mind.”
Commenting on the UK picture, RICS Senior Economist, Tarrant Parsons, said: “The UK commercial property market continues to exhibit a relatively underwhelming performance, as some respondents cite a wait and see approach ahead of the first budget statement from the new Government.
“Despite the market being on tenterhooks for any new announcements, there are reasons to be more optimistic. An improving lending environment is likely to provide support to commercial real estate investment activity going forward, and headline capital value and rental growth expectations are also modestly positive for the coming twelve months, in keeping with the idea that the market has shifted into the early stages of an upturn.”
