Surveyors in Wales remain cautious about the commercial property sector, amidst rising uncertainty and fiscal tension amid a fall in occupier demand, according to the latest Royal Institution of Chartered Surveyors (RICS) commercial property monitor.
A net balance of -16% of Welsh surveyors reported a fall in overall occupier demand through the third quarter of the year, edging down further from the -13% that was seen in Q2. Looking at the subsectors, demand for industrial space fell flat for the second consecutive quarter, whilst demand for retail and office space was reported to have declined (net balances of -22% and -25% respectively).
And investor demand remains subdued as well. A net balance of -23% of surveyors in Wales reported a decline in investment enquiries at all sector level (down from -18% in Q2). Demand from investors for both retail and office space fell (net balances of -25% and -44% respectively), whilst investor demand for industrial space fell flat.
With regard to rental expectations, surveyors expect rents will rise over the next three, but only marginally so, as a net balance of 6% of surveyors anticipate rents will increase. Breaking down the subsectors, a net balance of 30% of Welsh respondents anticipate that rents will rise for industrial space (up from 7% in Q2), whilst a net balance of -13% expect rents in retail space to fall, and rents in office space are expected to fall broadly flat.
However on the 12-month horizon, surveyors in Wales are slightly more optimistic as a net balance of 16% of surveyors expect rents to rise at all-sector level.
Regarding capital values, surveyors in Wales expect these to be flat through the final quarter of 2025. Office space is the only subsector where capital values are expected to rise over the next three months (a net balance of 11%). Capital values for industrial space are anticipated to be flat through
Q4, whilst in retail space a net balance of -13% of surveyors expect that capital values will fall over the next quarter.
And in a similar trend to rental expectations, surveyors in Wales are more optimistic on the 12-month outlook for capital values than they are in the short term. A net balance of 14% of respondents expect capital values to rise at all sector level over the year, up from 7% seen in the survey previous.
Chris Sutton of Sutton Consulting Limited in Cardiff commented: “There is a lack of modern Grade A floorspace across both the office and industrial markets. Office occupiers are generally seeking to reduce their footprint but trade up in terms of quality, particularly formal and informal meeting space. The industrial market again lacks modern floorspace, although Indurent (formerly St Modwen) continue to develop at Llanwern, Newport.”
Jonathan Phillips of Provinca Limited in Cardiff added: “The biggest change in the last three months has been the lack of confidence from occupiers across almost all sectors. This is likely to be further highlighted in the next three months as the Budget looms into view.”
Commenting on the UK picture, RICS Head of Market Research & Analysis, Tarrant Parsons, said:
“The latest UK Commercial Property Monitor illustrates reduced market activity. Both occupier and investor demand experienced slight dips this quarter. A cocktail of elevated bond yields, above- target inflation, and fiscal policy uncertainty is creating caution across investors.
“Landlords remain under pressure to offer increasingly generous incentives as vacancy rates continue to move higher. Meanwhile, the appetite for secondary assets continues to wane. Although prime and alternative sectors still offer pockets of resilience, the near-term outlook has become more subdued amid an increasingly challenging near-term macro environment.”
