Occupier demand for commercial property in Wales was muted in the second quarter of the year according to the latest Royal Institution of Chartered Surveyors (RICS) commercial property monitor, however there are some signs of optimism for rents in the months ahead.
A net balance of -7% of Welsh respondents reported a fall in overall occupier demand through the first quarter of the year. Looking at the subsectors, a net balance of -8% of respondents reported a fall in occupier demand for industrial space. A net balance of -14% of Welsh surveyors reported a fall in occupier demand for retail space, which although remains in negative territory, is up from the survey previous, and for the second consecutive quarter, occupier demand for office space fell flat.
Looking ahead, though, there appears to be some improvement in sentiment. Surveyors in Wales expect rents to rise over the next three months, with a net balance of 13% of respondents anticipating that rents will increase. Both office and industrial space are expected to see rises in rents, however rents in retail space are expected to fall over the next three months.
On the investor side of the market, demand fell flat at the all sector level in Q2. There was a fall in demand from investors for office space, however investor demand for both industrial and retail space rose through the second quarter of this year.
When it comes to capital values, respondents in Wales are more optimistic for the industrial sector which is expected to see its capital values rise over the next three month period. However capital values in both retail and office space are expected to decline. This points to an overall flat picture.
Chris Sutton of Sutton Consulting Limited in Cardiff said: “There is a lack of available Grade A floorspace across both office and industrial markets. Developers face challenges including funding, planning delays and increased construction costs. There are, however, high quality occupier enquiries in the Cardiff office market, and a recognition that rents will need to rise to improve viability. In the industrial sector, developer Indurent has announced the final two phases of its landmark scheme in Newport, with quoting rents of £10-£12 per sq ft.”
Commenting on the UK picture, RICS Head of Market Research and Analytics, Tarrant Parsons, said: “The UK commercial property market appears to have weathered the initial shock from the escalation in geopolitical tensions earlier in the year reasonably well, with the tone from respondents this quarter noticeably more settled than in Q1.
“Occupier fundamentals continue to hold up, and there is tentative evidence that the sharp tightening in credit conditions seen earlier in the year is starting to unwind. That said, the pace of the recovery in investor sentiment remains modest, and respondents continue to flag caution given the wider macroeconomic backdrop.
“As we move through the second half of the year, the trajectory of interest rates, alongside developments on the international stage, will remain critical to whether or not positive momentum is allowed to build.”
