Occupier demand for commercial property in Wales fell flat in the third quarter of this year according to the latest research from Royal Institution of Chartered Surveyors (RICS).
However, its latest commercial property monitor reveals a contrast between different sub-sectors of the market. Occupier demand for industrial space rose (a positive net balance of 25%), while a net balance of minus 23% of Welsh surveyors reported a fall in demand for retail space.
Looking at overall investor demand, a net balance of minus eight respondents in Wales reported a fall. Whilst this balance remains in negative territory, it is an improvement on minus 19% in the previous quarter. Looking at the subsectors, again, industrial spaces continues to perform better than office and retail.
A net balance of 12% of respondents report that investor enquiries for industrial space rose, whilst both office and rental space saw declines, with net balances of minus 13% and minus 21% respectively. Whilst both remain in negative territory, both subsectors are less negative than seen in Q2.
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Regarding capital value expectations, on the three-month outlook, a net balance of minus 9% of respondents expect capital values to fall over the next quarter, the second consecutive quarter this balance has remained negative.
A net balance of 13% of respondents anticipate that capital values for industrial space will rise over the next three months, whilst net balances for both retail ( minus 33%) and office ( minus 8%) space remain muted. The 12-month picture looks more positive, as a net balance of 7% of Welsh surveyors expect capital values to rise over the next year.
With regard to rental expectations, a net balance of 14% of surveyors in Wales expects rents to fall over the next quarter. A net balance of 25% of Welsh respondents anticipate that rents will rise for industrial space, whilst rents for office and retail space are expected to fall (net balances of minus 21% and minus 46% respectively). On a 12-month horizon, surveyors anticipate that rents will rise at all-sector level with 9% of respondents expecting an increase.
Chris Sutton of Sutton Consulting, based in Cardiff said: “The usual summer slowdown in transactions was extended this year by the election. The Budget provides food for thought for certain investors and solicitors have been exceptionally busy completing transactions before this deadline. The industrial sector continues to lead the market with healthy rental growth along the M4 corridor. The office market is focussed upon higher quality buildings with personality, for second hand Grade B space the challenges are greater.”
Commenting on the Ƶ picture, RICS senior economist, Tarrant Parsons, said: “The Ƶ commercial property market continues to exhibit a relatively underwhelming performance.
“Despite the market being on tenterhooks for any new announcements, there are reasons to be more optimistic.
"An improving lending environment is likely to provide support to commercial real estate investment activity going forward, and headline capital value and rental growth expectations are also modestly positive for the coming twelve months, in keeping with the idea that the market has shifted into the early stages of an upturn.”
