Overall sentiment in the commercial property sector in Wales remained weak in Q2 2019, with data for the office and industrial property faring much better than the struggling retail sector, according to the Q2 2019 RICS survey.
Overall demand from occupiers for commercial property in Wales was broadly flat, with occupier demand for office and industrial space reported to be rising and demand for retail space falling steadily for the eighth quarter in succession.
As demand for industrial space rose, the number of vacant industrial units continued to decrease, and at a faster rate. Availability continued to rise in retail however. Indeed, the number of vacant retail units has been increasing steadily for two years. Despite the ongoing demand for office accommodation, respondents did point to a rise in office availability during the past quarter, linked to new developments coming available to let.
[/aoa]With regard to the outlook for the occupier market, the net balance for three-month rental expectations was negative (though only marginally so) for second month in succession. However, this was largely driven by the retail sector with a net balance of -35%. Expectations for office rents are flat, whilst respondents, on balance, expect industrial rents to rise in the quarter ahead.
With regard to the investment market, respondents point to demand being subdued. Overall investment enquiries were reported to be flat, with another sharp fall reported regarding enquiries about retail opportunities. Enquires from potential investors about office and industrial property were reported to have risen modestly.
Chris Sutton, RICS Commercial Property Spokesperson in Wales and Director at Sutton Consulting, said: “The headlines are, once again, the slow decline of retail, in-town and out of town, whilst the office and industrial sectors remain more robust. However, agents have reported enquiry levels for the office and industrial sectors to be broadly flat and there is an overall impression that corporate investment decisions are being postponed.”
“A smooth Brexit outcome may unlock activity in 2020. However, in the short term, the market remains volatile and subject to dynamic change, as illustrated by the Ford closure announcement in the industrial market and a series of cuts in the outsourcing sector in the Cardiff office centre. Activity in the investment market is more subdued than 2018 with open-ended funds adopting a more cautious approach to accommodate any call for redemptions. However, for well-let property there remains no shortage of local, UK and overseas investors prepared to invest in Wales,” he adds
Michael Bruce of DLP Surveyors in Cardiff said: “Wales has suffered a number of recent blows with Ford due to close its Bridgend engine plant with the loss of 1,700 jobs, and Quinn Radiators have gone into administration putting a further 280 jobs at risk in Newport. The Welsh First Minister has decided against the building of the M4 relief road around Newport. The area will continue to be a bottleneck strangling the Welsh economy.”
Peter Graham of Gerald Eve in Cardiff commented that Welsh investors are reluctant to commit at present.
Rowland Jones of RJ Chartered Surveyors in Cardiff said: “We are currently experiencing a great deal of uncertainty”.
The main findings of the survey were (all net balances of respondents):
- The net balance for occupier demand (all sectors) was 2%, indicating that overall occupier demand was broadly flat in the quarter. Demand for industrial space (+24%) and office space (+20%) increased, whilst occupier demand for retail space was reported to have fallen again (according to a net balance of -39% of respondents).
- The balance of respondents (9%) indicated that availability of commercial property space was up. There was a big divergence at a sector level though, with the net balance of respondents pointing to availability of industrial space (-24%) falling and the availability of office (+24%) retail space rising (+30%).
- The net balance for 3month rent expectations was -2%, meaning that 2% more surveyors expect rents to fall than rise. Sentiment in the industrial sector (+24%) was positive whilst expectations for retail rents remained in negative territory (a net balance of -35% of respondents). Expectations for office rents were broadly flat.
- Investment enquires were down according to the net balance (-2%) of respondents. Again, industrial (+12%) fared much better than the retail sector (-30%) according to the balance of respondents.
- The net balance for 3month capital value expectations was 7%, with capital value expectations in the industrial sector strongest (+32%). The indicator for retail capital values remained very weak (-39%).