The escalation of tensions in the Middle East appears to have impacted on confidence in the commercial property market in Wales, with both occupier and investor demand reported to have fallen in the first quarter of the year and the outlook for rents and capital values said to have deteriorated, according to the latest Royal Institution of Chartered Surveyors (RICS) commercial property monitor.
A net balance of -17% of Welsh respondents reported a fall in overall occupier demand through the first quarter of the year, with demand for office space reported to have been flat, demand for industrial space said to have risen, and demand for retail space said to have fallen markedly.
A net balance of -18% of respondents was reported for investment enquiries which points to a lower level of investor demand in Q1. Indeed, the balances for investment enquiries for both office and retail space were markedly lower than in the previous quarter.
Looking ahead, respondents expect the next three months to be challenging as well. On the occupier side, they, on balance, expect rents to continue to come under pressure over the next quarter, particularly regarding office (a net balance of -10% of respondents) and retail (a net balance of -31% of respondents).
Similarly, capital values at an all sector level are on balance expected to edge lower, with negative net balances reported for office space (-11% of respondents) and retail space (-51% of respondents).
Survey contributor Richard Baddeley of Richard Baddeley & Company in Conwy commented: “Ahead of the Senedd elections there is a general lack of confidence in the Welsh and UK economy, making existing companies reluctant to invest, and there is generally a lack of inward investment apart from the major centres in South Wales – Cardiff, Newport and Swansea – and Deeside in the north. Demand for industrial space in the north is particularly low and supply is low, with the exception of Wrexham and Deeside. Anglesey is anticipating growth with the Wylfa project and facilities at the Holyhead Freeport.”
Chris Sutton of Sutton Consulting Limited in Cardiff said: “There is a lack of Grade A floorspace across both the office and industrial property sectors, particularly in Cardiff and the M4 corridor. In the office market, there is steady demand from occupiers using lease events to reshape their business environment, typically seeking a smaller footprint of a higher quality. There are signs that prime office rents are increasing, and this trend is needed if new development is to become viable again.”
Commenting on the UK picture, RICS Head of Market Research & Analysis, Tarrant Parsons, said: “The occupier side of the commercial property market has, to date, shown little visible impact from the increasingly difficult global geopolitical environment, with survey indicators tracking demand levels, availability and rental expectations largely unchanged since late last year. However, the negative macroeconomic consequences of the conflict in the Middle East are evident in the investment market, most notably through tighter credit conditions and growing caution around near term capital values. This is weighing on confidence just as the market had begun to display tentative signs of recovery. Whether this represents a short term interruption or the beginning of a more prolonged slowdown will depend on how quickly the current disruption across global energy markets begins to ease.”
