Economic and political uncertainty clouding SW commercial property outlook
Occupier demand has moderated in the retail segment of the South West commercial property market, but conditions in the industrial and office sectors remain firm, according to the Q2 2017 RICS UK Commercial Property Market Survey.
South West occupier demand strengthened during Q2, following only modest increases in each of the last two quarters with 16% of respondents reporting an increase. Sector breakdown shows flat demand for retail space, offset by reasonable growth (net balance of +26%) in demand for industrial property.
Near term rent expectations in the region display a similarly mixed picture. While the outlook for industrial space remains firm with 37% more respondents expecting to see a rise in rents, a slightly softer trend is expected retail sector. The flat demand for retail space continues to be attributed by some respondents to the rise in recent years in online shopping. Significantly, the amount of available retail space rose for a second straight quarter in the South West.
On the flipside, a greater shift towards online shopping is supporting the demand in the industrial segment, with respondents noting a squeeze in the supply for leasable space in this area – a prevalent trend since 2012.
Anecdotally, political uncertainty is cited as a factor weighing on occupier and investor decisions. Respondents cited Brexit negotiations and the General Election resulting in a hung parliament as clouding the outlook for commercial real.
Looking at the investment market, 27% more respondents citing a rise in investment enquiries during Q2 across all sectors in the South West (rather than a decline). Mirroring the picture in the occupier market, enquiries in the office and industrial sector continue to increase firmly but were little changed in the retail sector.
In terms of capital values, projections have only modestly increased in the retail sector. Conversely, expectations in the industrial and office sectors remain solid.
Simon J Pontifex FRICS, Spa Chartered Surveyors commented: “Local demand across the sectors remains. Some future uncertainty linked to Brexit and the General Election has given some pause for thought. Scarcity of supply is taking the market forward.”
Simon Rubinsohn, RICS Chief Economist commented: “The commercial property market has enjoyed a good run and it is hardly surprising that we are now seeing a flatter trend emerge in the responses to the survey which chimes both with recent economic news flow and the political environment. That said, the underlying picture remains resilient which is highlighted by the fact that medium term rent expectations are still holding up particularly for prime space.
“The key issue for the market remains the interest rate outlook and despite some mixed comments from policy officials in recent weeks, it is hard to see a material shift in the Bank of England’s approach anytime soon.”
