The commercial property market in Wales remained sluggish and lacking momentum in Q4 2023, according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor. However, there were improvements on the previous quarter, and forward-looking sentiment improved markedly.
A net balance of -23% of surveyors in Wales reported a fall in occupier demand through Q4 2023, and although remaining in negative territory, this was an improvement from the -42% that was seen in Q3. Looking at each subsector, a net balance of -18% of Welsh respondents reported a fall in demand for office space, -4% for industrial and -45% for retail space. Again, these each represented less negative sentiment than in the previous quarter.
Looking at investor demand, this also improved quarter on quarter, but only marginally. A net balance of -32% of respondents in Wales reported a fall in overall investment enquiries, up from -35% the quarter previous. Investor demand for both retail and office space continued to fall (net balances of -47% and -50% respectively). According to surveyors, investor enquiries for industrial space fell flat through the final quarter of the year.
Short-term capital value expectations also improved quarter-on-quarter whilst remaining in decline. A net balance of -22% of respondents in Wales expect a fall in overall capital values, and although this is the sixth consecutive quarter this figure remains in negative territory, this figure has improved from -40% that was seen in Q3, and -30% that was seen in Q2. Industrial is the only subsector in which a net balance of surveyors in Wales expect a rise in capital values over the next three months.
However, longer term, overall capital value expectations seem more positive according to Welsh surveyors. A net balance of -5% of respondents expect all-sector capital values to fall over the next 12 months. This is up from -38% in Q3. This is largely driven by the industrial sector though, with a net balance of 50% of Welsh respondents anticipating capital values to rise for industrial space over the next year.
Rents are anticipated to fall at all-sector level in the short-term but expectations are less negative than the previous quarter. A net balance of -11% anticipate that rents for commercial property will fall through the first quarter of 2024, compared to -25% in Q3. Industrial space continues to be the strongest subsector with a net balance of 39% of respondents expecting rents for this type of space to rise through Q1 2024. On a 12-month horizon, rental expectations are their least negative since June 2022, with a net balance of -7% of respondents. Expectations for industrial rents in a year’s time are at their highest in three quarters.
Robert James Harrison of Triang Developments Ltd in Welshpool commented: “There remains a shortage of industrial buildings for business growth in parts of Wales due to a lack of availability of development land and high construction costs.”
James Perry of Property Consultants in Cardiff added: “I predominantly deal with industrial property and whilst demand has reduced slightly over the last six months, it is still strong and outstripping supply for all but the largest properties.”
Commenting on the UK picture, RICS Senior Economist, Tarrant Parsons, said: “Current conditions remain challenging across the UK commercial property market, with investor demand still being weighed down by the tighter lending climate and uncertain outlook for values. At the same time, relatively weak momentum with respect to economic activity more generally is taking its toll on tenant demand, with the ongoing structural challenges facing parts of the office and retail sectors also hampering market sentiment. That said, the significant turnaround in expectations for monetary policy of late provide a reason for cautious optimism going forward, and the latest results do point to a more stable backdrop for credit conditions coming through this quarter.”
