RICS says market is ‘sensing an upturn’

More than half of property professionals are sensing an upturn in the market, lead by the phenomenally strong industrial sector. The latest RICS commercial property market survey showed 56% of those questioned reporting that the worst was behind them. Investor appetite also mirrored this, with +15% of contributors reporting an increase in all-property investment enquiries over the second quarter. But it was the industrial sector that continued to lead the pack, with a net balance of +64% – the strongest reading on record. However, office sector investment appears to have turned a corner, with demand picking up from -18% in Q1 to +4% in Q2. RICS said that this pointed to a more stable trend coming through. Across all sectors, occupier demand was strongest since 2016, with +16% of respondents reporting a pick-up. RICS economist Tarrant Parsons said: “Confidence continues to recover across the UK commercial property market, a point supported by the fact a majority of survey participants now sense overall conditions are consistent with an upturn.” Demand trends are now beginning to stabilise across the office sector, mostly for prime space, with a positive demand for office space in the South at +7%. And while the net balance in London is a relatively flat -3%, that is a marked improvement from the -79% of Q4 2020. Again, industrial property continued to lead, with both investor and occupier demand growing again. Industrial availability, meanwhile, continues to be scarce, as -48% of respondents reported a decline. RICS noted that this is the eighth year in a row that respondents have reported a lack of available industrial space in the UK. Parsons said: “Aided by the growth in online spending seen during the pandemic, demand remains robust throughout the industrial sector, producing strong expectations for both rents and capital values in the year to come.” Prime industrial rents are expected to rise by 5% in the year ahead and secondary industrial rents by 3%. “On the other side of the equation, changes to work and lifestyle preferences continue to create challenges for the retail and office sectors,” Parsons added, but noted “trends may be starting to turn in a more favourable direction” – for offices at least. Prime office rents have turned significantly less downbeat and are expected to fall by 1% in the coming 12 months, whereas secondary office rents are falling by 4%. The picture for retail, however, is less optimistic, with -25% of respondents reporting a fall in demand, although this is noticeably less downbeat than the -55% recorded in Q1. Retail rents are expected to continue to fall, as projections stand at -5.5% for prime and -8% for secondary. While there is plenty of available leasable office and retail space, the recent rise in vacancies does appear to be slowing, although respondents have reported an increase in the use of incentives on offer to encourage take-up. For the year ahead, RICS said, capital value growth remains broadly unchanged, and looking beyond the mainstream markets, respondents expect values to rise for multifamily residential properties, data centres and aged care facilities. Hotels are now only marginally negative at -1% and student housing has moved into neutral territory. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Image © Paul Gillis/Shutterstock