Occupier demand for commercial property in Wales rose for the first time in almost two years according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor, as demand for industrial space remained strong and demand for retail space turned positive for the first time since well before the pandemic.
A net balance of 8% of surveyors in Wales reported that occupier demand at all-sector level had risen through Q1 2024. Broken down by subsector, demand for both industrial and retail space rose (net balances of 31% and 9% respectively), with retail having risen for the first time since 2017. A net balance of -15% of Welsh respondents reported that demand for office space had fallen.
Looking at overall investor demand, a net balance of -13% of respondents in Wales reported a fall. Whilst this balance remains in negative territory, it is an improvement on -32% in the previous quarter due to a less negative picture for retail. Looking at the subsectors, investor enquiries for industrial space fell flat, whilst both office and rental space saw declines, with net balances of -31% and -9% respectively. The later was an improvement from -47% in the previous quarter.
Regarding capital value expectations, on the three-month outlook, a net balance of 7% of respondents expect capital values to rise over the next quarter, the highest this balance has been since mid-2019. A net balance of 38% of respondents anticipate that capital values for industrial space will rise over the next three months, whilst net balances for both retail (-9%) and office (-8%) space remain more subdued. On the twelve-month picture, surveyors in Wales anticipate that capital values will fall flat over the next year.
With regard to rental expectations, a net balance of 4% of surveyors in Wales expects rents to rise over the next quarter. A net balance of 46% of Welsh respondents anticipates that rents will rise for industrial space, whilst rents for office and retail space are expected to fall (net balances of -8% and -27% respectively). On a 12-month horizon, surveyors anticipate that rents will fall at all-sector level with -5% of respondents expecting a decline.
Chris Sutton of Sutton Consulting Ltd in Cardiff commented: “Industrial rents continue to strengthen for Grade A new-build floorspace at St Modwen Park, Newport with £8.75 per sq. ft achieved and quoting rents now over £9.00 per sq. ft. Only three years ago, rents on the same estate were £6.50 per sq. ft. The office market continues to adapt to changing working patterns with occupiers shifting to higher quality floorspace, with a focus upon Cardiff city centre. The lack of shovel-ready employment sites along the M4 corridor is a constraint on the economy.”
Commenting on the UK picture, RICS Senior Economist, Tarrant Parsons, said: “Although sentiment remains relatively cautious regarding the near-term outlook across the UK commercial property market, the latest survey results do show some signs of recovery coming through. For one, occupier demand growth now appears to be gaining traction slightly, supported by the broader economy seemingly returning to growth following a brief recession late last year. Moreover, the prospect of interest rate cuts later this year have already led to an easing in credit conditions across the sector, marking the first such improvement in our feedback since 2021.
This should begin to support investment market activity as the year wears on, which, in turn, will likely see a more stable picture emerge for headline capital values.”
