Data centres to enjoy rental growth as prime offices fall, says RICS

Data centres rents are set to increase by 3% in the next 12 months, according to the latest RICS quarterly commercial property survey. In contrast, a net balance of -52% of surveyors expect prime office rents will fall, deepening to -62% for secondary offices. Prime retail rents are predicted to fall by a net balance of -82% surveyors, alongside a similar expectation for secondary retail rents (-81%). However, +51% forecasted a solid rise in prime industrial rents. Hotel rents are expected to fall by 8%, while student housing is also bracing for a decline. Capital values by sector Data centres are also on track for a rise in capital values over the next 12 months, according to +46% of respondents. Aged care (+11%) is also set to climb. Prime and secondary industrial properties respectively returned net balances of +51% and +21% over the year ahead. But steep declines in capital values are expected across other categories, with net balances standing at -58% for offices, -80% for retail, and -83% for hotels. Multifamily residential values are expected to stay more or less flat (+4%). Occupier demand sinks Overall occupier demand continued to decline in Q3, with a net balance of -33% surveyors reporting a fall in tenant demand at the all-sector level. However, RICS noted that this was “less downbeat” than its Q2 equivalent. Offices and retail have continued to struggle with dwindling demand, but industrial is showing solid signs of recovery, said RICS. The organisation noted that office vacancy rates are increasing at the strongest pace since 2009. Occupier demand for office space dropped with a net balance of -66% posting a fall, alongside demand for retail space (-73%). In contrast, occupier demand increased across the industrial sector, with a net balance of +22% noting a pick-up, significantly improving from -13% in Q2. Tarrant Parsons, economist at RICS, said that office occupier demand remains in decline and “may continue to come under pressure going forward”, as businesses reassess their office space requirements alongside the increase in remote working. However, the Q3 figures “point to a solid rebound within the industrial sector, with increased capacity in this segment needed to meet the sharp rise in online spending”. RICS said that 78% of surveyors nationally view the market to be in a downturn, which remained broadly in line with a 76% equivalent in Q2. This indicates that there has not been any increase in respondents sensing that the market has reached a floor. Green thinking RICS also recorded an increase in occupier interest in green certified buildings, with 36% of respondents posting a rise over the past 12 months. This grew to +43% for investors. The largest share of respondents (+46%) felt that while there is no price or rent premium for green certified buildings, those without such certifications are subject to a brown discount.   To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette Photo by Jeff Blackler/Shutterstock