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Commercial property shows signs of recovery this year

More than half of respondents agree conditions are consistent with an upturn, according to the Royal Institution of Chartered Surveyors, RICS’ latest commercial property market survey. In the second quarter, 56 percent of survey participants predicted a recovery compared with 38 percent of respondents from January to March.

Chief economist Simon Rubinsohn said: “Demand trends appear much more stable in the office sector relative to recent quarters, while the industrial sector continues to see sharp growth in interest from both occupiers and investors.”

A net balance of 16 percent of the 506 survey participants reported a pick-up in occupier demand during the first three months of 2021 – the strongest aggregate demand since 2016. This was dominated by industrial demand at 63 percent with retail and offices still reporting negative demand at 25 and 3 percent respectively.

Respondents continued to cite a sharp contraction in the availability of leasable industrial space, with the net balance slipping deeper into negative territory at minus 48 percent.

Prime office rents display marginally negative expectations for the year to come at minus one percent with secondary office rents anticipated to fall by four percent over the next year. Retail rents are envisaged to decline sharply, with expectations of a drop of 5.5 percent for prime and 8 percent for secondary.

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Industrial rents forecast to rise

But prime industrial rents are anticipated to climb five percent, while expectations are also firmly positive for secondary industrial rents at three percent growth.

“When viewed at the regional level, industrial rental growth expectations remain robust in all parts of the UK, with retail rents still projected to decline across the board,” said Mr Rubinsohn.

“Demand trends appear much more stable in the office sector”

“Interestingly, central London prime office market now displays stable rental growth expectations, marking a significant turnaround from the deeply negative assessment returned over recent quarters.”

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Survey respondents predicted a flat 12 months for prime offices in Scotland, the West Midlands, East Anglia and the Northeast. Secondary office rents are anticipated to decline further across all parts of the UK over the next year.

A net balance of 15 percent of contributors reported an increase in property investment inquiries led by the industrial sector at 64 percent with offices and retail in negative territory.

Capital values were predicted to rise for less mainstream sectors such as multifamily residential properties, data centres and aged care facilities. Student housing was also forecast to move out of negative capital value territory to neutral in the next year.

By Jayne Smith

Source: Workplace Insight

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Commercial property market growth prediction

The commercial property market could see returns grow by 6.4 per cent in 2021, real estate firm Colliers predicts.

The growth would be made up of 4.8% income return and 1.6% capital growth.

This follows a 2.3% decline in all property total returns in 2020. The firm says industrial and supermarket assets will be the most popular with investors in its latest Real Estate Investment Forecasts report.

Oliver Kolodseike, deputy chief economist at Colliers, said: “Latest business and consumer confidence survey data suggest that the economy will bounce back strongly in Q2. This is heightened by consumer confidence rising to its highest level since before the start of the pandemic, adding to hopes that the consumer sector will help drive the economic recovery.

“Mild rental growth will result in a slight reduction in yields in the short term, but we expect yields to then generally shift out in line with the trends for the Bank of England Bank Rate and 10-year government bond yields.”

Colliers predicts that over the five-year forecast, industrial and supermarkets will be the best performing sectors.

All retail total returns are expected to show marginal growth of 0.6% this year, having suffered a 12.4% decline in 2020.

The office sector has also been going through structural change with lease lengths shortening according to Colliers.

While the proportion of deals signed with lease commitments in excess of three years averaged out at 77% between 2016-2019, in 2020 the equivalent number was down to just 53%.

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Colliers expects all industrial yields to stand at 4.73%. Going forward, the firm predicts a stabilisation in 2022 and very mild outward shifts thereafter.

Given the ongoing strength of rental growth, all industrial total returns will show growth of 16.1% this year, the firm says, before slowing to a more sustainable rate of 5.4% in 2022.

John Knowles, head of National Capital Markets at Colliers, added: “It is particularly hard to forecast across all sectors over the next six months, however it does seem that industrial will continue to benefit from a demand driven market, much as it has done over the last 18 months. I have high hopes for the office sector, as confidence returns as people start to occupy their workplace again and business travel should open up to some extent over the next couple of months.”

Source: Punchline

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Commercial property market shows signs of life

UK commercial investment activity rose 42 percent in June compared to May, up from £755m to £1.3bn, taking total volumes for H1 2020 to £15.6bn, according to the latest market update from Savills. With the all-sector prime commercial property yield remaining stable at 5.21 percent in June, Savills says that together this may signal some stability is now returning to the UK investment market.

According to the real estate advisor, another notable change is that there are signs that yields may harden on prime West End offices, industrial multi-let and distribution assets. This reflects a very typical turning point for the commercial property market, says Savills, with investor interest returning first to those sectors that are perceived as core.

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James Gulliford, joint head of UK investment at Savills, comments: “There’s some evidence that we may have passed the nadir of this cycle in terms of investment volumes in May. This of course does not change the overall story of Q2 2020 being the weakest quarter on record for UK investment activity, and we estimate that volumes in the first half of 2020 were 43 percent below the five year average, but the hope is now that a corner has been turned.”

Mat Oakley, head of UK and European commercial research at Savills, adds: “The shape of the UK economic recovery is increasingly looking ‘tick-shaped’, starting with strong quarter-on-quarter growth in Q3 2020, though with 2021 not showing a recovery of the magnitude of the fall seen in 2020. While a revival in GDP growth is imminent, unemployment is not expected to return to 2019 levels at any point in the next five years. Although this isn’t essential, as many businesses were reporting recruitment difficulties due to such a tight labour market, high levels of unemployment will drag on consumer sentiment, boost precautionary saving and diminish retail spending.”

By Neil Franklin

Source: Workplace Insight

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British commercial property back on the investment map

Investors expect to plough billions of pounds into UK commercial real estate this year, citing some long-awaited Brexit clarity after last week’s departure from the European Union.

Real estate investment foundered after Britain’s vote to leave the EU 3-1/2 years ago, hit by uncertainty over the move and its potential impact on the economy. But sentiment has improved with December’s resounding election victory for the Conservative party, effectively guaranteeing Brexit.

Though a trade deal between Britain and the EU has yet to be negotiated, LaSalle Investment Management told Reuters it plans to spend 1 billion pounds (on UK property this year. The company already has 12.3 billion pounds in real estate assets in Britain.

Madison International Realty, meanwhile, is “pursuing several possible transactions”, accoring to the private equity firm’s president, Ronald Dickerman. The firm said in October that it had more than $1 billion to spend on central London.

Dutch real estate developer Breevast, London-listed Intermediate Capital (ICG) and U.S. duo CA Ventures and Invesco Real Estate all told Reuters they see opportunities in Britain, with ICG’s co-head of real estate, Martin Wheeler, highlighting increased appetite from overseas investors.

Apollo Global , which lent $2.9 billion for real estate in Britain last year, is similarly upbeat. Ben Eppley, head of European commercial real estate debt at Apollo, said there has been an “an unlocking of transactions” in recent weeks thanks to greater clarity over Brexit.

Ghada Sousou, CEO of real estate recruitment agency Sousou Partners, said the business had been introducing UK real estate companies to overseas investors.

It is also helping a private equity firm to build up a UK real estate team, she said without naming the firm.

Uncertainties have by no means disappeared, however, with the trade deal negotiations and broader global economic factors having the potential to weigh on UK property.

“We are starting to hear from some European capital that maybe it’s time to think about London,” said Zach Vaughan, head of European real estate at investor Brookfield, adding that it may be too early to talk about a rise in transactions.

“If you are sitting on an investment committee in another country, you will ask what happens if there is no trade deal? More uncertainty is never helpful.”

By Carolyn Cohn and Simon Jessop

Source: Yahoo Finance UK

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Scottish commercial property investment exceeds £2 billion in ‘uncertain’ 2019

Investment in Scottish commercial property remained resilient despite a dip in volumes amid political and macro-economic challenges, according to new analysis from Knight Frank.

The independent real estate consultancy found that £2.074 billion worth of deals concluded in 2019. This was 10.38% below the five-year average after a quiet final quarter, when the UK went to the polls for the General Election.

Edinburgh offices was the stand-out asset class in 2019, increasing by 70.42% on the year before – from £284 million to £484m. By June 2019, investment levels in Edinburgh offices had outperformed the whole of last year on the back of a series of major transactions, including the Leonardo Innovation Hub at Crewe Toll and 4-8 St Andrew Square.

Overseas investors continued to be the main drivers of investment in Scotland last year, with a 56% share of spend on commercial property. Meanwhile, UK institutions’ share of investment has dropped to just 14%.

The well-publicised challenges faced by the high street were reflected in property investment levels in 2019. Transactions for shop units were 79.57% below the five-year average at just £44m (compared to £215.4m), while shopping centres represented £38m of investment in 2019 against an average of £197.6m (-80.77%).

However, Knight Frank said that following the General Election there had been a raft of interest in the Scottish commercial property market and, with a number of buildings being lined up for a sale, the year ahead looked very positive.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “There were a lot of factors for investors to contend with in 2019 – Brexit negotiations, a change of Prime Minister, and a General Election to name but a few.

“That inevitably leads to a pause for thought, as we have seen with any significant macro-economic or political changes in the past. Against that backdrop, investment levels were robust last year and there were some significant bright spots, such as Edinburgh offices.

“The proportion of buyers from overseas is at historic highs, with more than half of investment coming from international sources and the majority of deals being concluded off-market. Korean funds were particularly active last year – concluding three major deals in Edinburgh and Glasgow – while Middle Eastern interest has also been strong.

“We are already seeing signs that 2020 could be a great year. Investors are coming back to the market now that there is some much-needed political stability. We have had interest come in from a range of international sources, including some buyers who would be new to the Scottish market.

“Inevitably there will be some bumps in the road ahead as Brexit begins to take shape; but, for now, there is a real window of opportunity emerging and we expect trading volumes to pick up in the first half of 2020, all things being equal.”

Source: Scottish Construction Now

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Investing in commercial property: a tale of three markets

Britain’s commercial property sector has traditionally been divided into three subsectors: industrial, offices and retail. In the 1980s and 1990s, retail outperformed while industrial properties struggled as consumer spending rose inexorably but the country deindustrialised. In the last ten years retail has lagged as household spending migrated online; industrial property, however, has outperformed thanks to the growth in logistics warehouses, notably to service online shoppers. But in recent years some of the best growth has come from three smaller subsectors: student housing, healthcare and self-storage – or beds, meds and sheds. Investors can gain access to each of these subsectors through real-estate investment trusts. Are they still worth a look?

The university boom

Student numbers reached 2.3 million in 2018; 75% are undergraduates and 80% are British. Despite the introduction of full tuition fees in 2012, more than half of school leavers go on to higher education. The annual number of applicants through the Universities and Colleges Admissions Service (UCAS) has doubled to 533,0000 in 25 years. Students used to live in college-owned halls of residence or in the private rental market. But demand outstripped both the willingness of the former to provide the necessary capital and the capacity of the latter.

Unite Group (LSE: UTG) was founded in 1991, initially to provide purpose-built student accommodation in the Bristol area. It now provides 75,000 beds across the country. Unite forms partnerships with universities to ensure high occupation: 92% of beds are reserved for 2019/2020 and 60% are guaranteed by universities. Occupancy of 98%-99% has consistently been achieved and rental growth is in the range of 3%-4% per annum. At mid-year the group’s assets stood at £3.2bn, of which £1bn was financed by borrowings, although the £1.4bn recent acquisition of Liberty Living will have increased gearing to around 35%.

The shares, at 1,240p, trade at a 47% premium to net asset value (NAV), are valued at over 30 times earnings and yield just 2.6% but Unite says that the acquisition is “materially accretive to earnings”, while it is “confident of 3%-3.5% medium-term rental growth”. But even if the 12% growth in interim earnings and 8% growth in the dividend continues, it will take several years for the shares to look good value, despite the low-risk business model.

A turnaround story

Empiric Student Property (LSE: ESP) with 8,882 beds and £1bn of assets, seems much better value at 98p. It is on a 10% discount to NAV and yields 5%, but it is recovering from operational problems in 2017 that prompted a dividend cut. It focuses on smaller, higher-quality and more expensive buildings to appeal to graduates (46% of tenants) and overseas students (67%). GCP Student Living (LSE: DIGS), with £960m of assets, is of a similar size, but has less debt and an unblemished record. It trades on a 14% premium to NAV and yields 3.2%. It has 4,116 beds in 11 locations, but just 23% of its tenants are from the UK. As with Empiric, this may be an advantage as growth in international student numbers looks assured.

The rise of the health centre

The merger of Primary Health Properties (LSE: PHP) with MedicX leaves just two companies specialising in health centres: PHP, with £2.3bn of assets and Assura (LSE: AGR), with £2bn. Both trade on large premiums to NAV (38% and 50% respectively). But the attraction is dividend yields of 3.7% and 3.5% that are not only very safe, but also all but guaranteed to be at least inflation-indexed.

Both groups own purpose-built health centres, at least 90% of whose income comes directly or indirectly from the NHS on long-term leases, with the rest coming from pharmacies. Following the acquisition of MedicX, PHP now owns 488 of these, which are 99.5% occupied, while Assura has 560.

These health centres have replaced many of the old, small GP surgeries, but house many more doctors together with modern equipment, clinics, diagnostic testing, pharmacies and even day-surgery centres. Rental agreements provide for modest annual increases, but there is the potential for more if a property is modified or extended. Expansion comes from buying recently built premises or through funding a developer and then buying on completion, thereby avoiding risks connected with construction.

With only 20% of the PHP portfolio having a lease expiry of less than ten years, there is little opportunity or wish to trade the assets; the value of the shares lies in the rental stream. This makes them comparable to infrastructure funds, except that ownership of the assets is permanent. Strong performance in 2019 means that the shares of both are no longer great value, but they represent sound investments for those seeking secure, growing income.

The “meds” theme also covers two smaller companies that own residential care homes, Impact Healthcare (LSE: IHR) and Target Healthcare (LSE: THRL). Target, with £600m of property assets and £100m of net debt, operates 69 purpose-built care homes. Impact, with £311m of property assets and some £10m of net cash, owns 84 care homes and two healthcare facilities leased to the NHS. In both cases, the care homes are leased to high-quality operators for the long term, with built-in rental increases. Both shares seem attractive, with Target trading on a 7% premium to NAV and yielding 5.8%, while Impact trades on a 2% premium and yields 5.7%.

Note, however, that the number of care beds in the UK has fallen some 20% since its peak of around 550,000 in 1997. The NHS and local authorities have not been prepared to increase payments to operators by enough to cover escalating costs. In 2011 Southern Cross got into trouble amid an 8% drop in occupancy, the result of fewer referrals due to public-spending cuts. It could not pay its escalating rent bill and became insolvent. Well-run care homes are the most cost-effective way of caring for the elderly, but governments have repeatedly pursued the false economy of squeezing the private operators, who account for nearly all capacity. If this keeps happening, Target and Impact could find their rental income under pressure from struggling operators.

Businesses need more storage space

The self-storage market conjures up images of warehouses crammed with personal possessions. That, however, probably only accounts for a small part of the UK’s 20 million square feet of lettable area, with rates varying from £16 per square foot (sq ft)in Scotland to £28 in London. Personal storage is an important part of the market, but the business market is key. For small businesses, storing goods, records and stock at a self-storage unit or lock-up garage is likely to prove much cheaper than doing so at an office or in a shop, particularly with the increasing number of online entrepreneurs operating from home.

Hence the success of the two listed specialists, Safestore (LSE: SAFE) and Big Yellow (LSE: BYG), trading at premiums of 52% and 75% to NAV and yielding 2.2% and 2.8% respectively. Safestore, with 149 stores (including 22 in the Paris region) has 6.5 million sq ft of lettable area valued at £1.4bn and Big Yellow, with 75 stores, has 4.6 million sq ft valued at £1.5bn.

Big Yellow’s recent interim results revealed revenue and profit growth of 3.4% and 6% respectively, thanks to a small increase in like-for-like occupancy and a 1.9% increase in rent per sq ft. Lettable area increased only 0.7%, although there are 13 development sites, of which six have planning permission. Big Yellow also owns 20% of Armadillo, with 25 stores, which it presumably hopes to buy the rest of. That would give it 6.6 million sq ft in all.

Safestore’s recent final results showed a 5.6% increase in revenue and a rise in earnings per share of 6.3%, thanks to increases of 3.5% in average occupancy and a 1% in average rates. It plans four new stores in 2019/2020, but insists that its “top priority remains the growth opportunity of the 1.5 million sq ft of currently unlet space”. Big Yellow’s occupancy of 83.4% is higher, despite its larger stores, giving less unlet potential and its net rent per sq ft of £27.73 is 6% higher than Safestore’s, despite the latter’s focus on London and the southeast (70 stores). Both shares trade on 27 to 28 times underlying earnings, so they look expensive despite the solid record and prospects.

ASR strategist Zahra Ward-Murphy acknowledges that “the beds, meds and sheds theme is not new and these sectors have been outperforming for some time. Nonetheless, we like these sectors because they are underpinned by secular demand drivers and therefore should prove relatively resilient to any further slowdown in growth”. Business risks look low and dividend yields are reasonable in relation to low interest rates and bond yields, while dividends should climb steadily.

However, with the exception of the recovery story of Empiric and the historically risky care-home owners, valuations are high and vulnerable to market setbacks, so investors should wait for the next general sell-off before eyeing them up.

By Max King

Source: Money Week

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‘Outstanding’ final quarter for north’s commercial property market

A SPRINT finish final quarter saw commercial property investment volume in Northern Ireland complete at £215.1 million last year – 19 per cent above 2018 though 4 per cent below the ten-year average, according to new research from Lambert Smith Hampton.

Its Investment Transactions bulletin showed that despite an outstanding final quarter with volume of almost £91m, the uncertain local and national political climate continued to weigh on volume with 2019 annual volume the second lowest since 2013.

Retail retained its place as the dominant asset class in Northern Ireland, with £92.5m of transactions accounting for 43 per cent of volume in the year due to two large fourth quarter retail park transactions. Throughout the first three quarters of the year, the highest proportion of volume had been in the office sector with Belfast city centre office investments remaining the most in demand asset class.

Despite a challenging retail market, three retail parks transacted in the latter half of 2019. In the largest deal, Sprucefield retail park in Lisburn was bought by New River Retail for £40m (yield 8.71 per cent), Crescent Link retail park in Derry was purchased by David Samuel Properties for £30m (11.50 per cent yield) and Clandeboye retail park by Harry Corry Pension Fund for £8.7m (13.50 per cent yield).

Office transactions this year totalled £74.1m, the highest volume in the office sector on record, boosted by Citibank’s purchase of their Belfast headquarters, the Gateway Office in the Titanic Quarter, for £34m (5.48 per cent yield). Other notable office transactions included a local government department’s £16.0m purchase of James House at the Gasworks and Vanrath Recruitment’s £12.5m purchase of Victoria House.

2019 saw a number of office assets purchased by owner occupiers for a combined total of £62.8m, including the aforementioned Gateway Office, James House and Victoria House.

As usual, local investors were the most active investor type. By comparison to 2018, activity from this group was subdued with the number of transactions down 38 per cent and volume down 23 per cent. There were a number of higher value assets purchased by private investors including Antrim Business Park for £12.5m (14.5 per cent yield) and Timber Quay in Derry for £5.3m (11.5 per cent).

At £26.2m industrial volume was at its highest for the decade in 2019, with both propcos and private investors purchasing in this sector. In Armagh, 35 Moy Road was purchased by David Samuel Properties for £6.3m (7.28 per cent yield) and CD Group, Mallusk by Alterity Investments for £2.6m (7.23 per cent).

Martin McCloy, director of capital markets, Lambert Smith Hampton, said: “Q4 provided a strong finish to what was a difficult year for the investment market. The extension of the Brexit deadline, the lack of a Stormont executive and the prolonged uncertainty delayed investment decisions in 2019.

“Yet demand remained constant with potential investors in Northern Ireland particularly seeking secure long-term income or high quality office investments.

“While retail was again the dominant asset class by volume, this was as a result of a small number of large transactions rather than a signal of renewed attractiveness in what is still a challenging sector. Core assets remain attractive but pricing is key.”

He added: “It is anticipated that the ending of local political uncertainty and increased clarity on the Brexit process will boost investor confidence, translating into a substantial release of pent-up demand and a busier 2020.”

By Martin McCloy

Source: Irish News

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Edinburgh rebound boosts Scottish commercial property sales to £1.2bn

A Scottish Property Federation (SPF) analysis of the latest commercial property sales figures has shown a rebound in the total value of sales in Scotland in Q3 (July to September) 2019.

In total, £1.2 billion was transacted in the quarter, nearly double the total value of commercial property sales in Q2 (April to June) 2019.

Edinburgh was a key driver of the increase in the value of commercial property sales, with sales in the capital more than tripling to £462 million in Q3 2019 when compared to the previous quarter. Partly as a result of several high-value transactions, Edinburgh dominated the commercial property market in Q3 2019, with a 38% share of the Scottish market by value.

Glasgow also continued the positive momentum with £216m transacted in the city during Q3 2019. Its total value increased by £44m on Q2 2019 and £63m against the same period in 2018.

Commercial property sales in Aberdeen remained steady at £32m. Aberdeen’s total value of sales rose slightly on Q2 2019 (by £2m) but remained £20m below values recorded in the same quarter last year.

Responding to the latest sales figures, David Melhuish, director of the Scottish Property Federation, said: “Q3 2019 was a strong quarter for commercial property sales; however, it comes on the back of a subdued first half of 2019, and the current one-year rolling total is still 3% lower than in the same period in 2018.

“We will be watching closely to see if this momentum can continue in the last quarter of the year, against the headwinds of continued political uncertainty and low economic growth.”

Cameron Stott, director at commercial property agency JLL, added: “The large volume by value has been driven by substantial asset sales which have offered investors either long secure income or the asset is in a prime location.

“This volume also reflects how attractive Edinburgh continues to be notwithstanding the political uncertainty.

“It is also interesting to note the continued interest from foreign investors no doubt seeing the UK as value for money but also benefiting from a more attractive yield compared to many other European cities.”

Scottish commercial property investment volumes also rose sharply on both a quarterly and an annual basis, according to property data experts CoStar UK. Investors spent £798m in Q3 2019, the highest quarterly amount since Q1 2018.

CoStar also highlighted that Scotland attracted more investment than any other UK region outside of London and the South East, with volumes heavily supported by a continuing flow of capital from overseas. It was reported that foreign investors were behind over half of all acquisitions by value, with European and American investors involved in sizeable purchases.

Source: Scottish Construction Now

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RICS: Surveyors sense a downturn of commercial property market

The Brexit impasse is contributing to perceptions that the commercial property market is in the downturn phase of the property cycle, the RICS UK Commercial Property Market Survey has revealed.

Figures for Q3 2019 showed that 62% of surveyors sensed the overall market is in a downturn phase of the property cycle.

Brexit was suggested as having an increasingly detrimental impact on market activity.

Tarrant Parsons, economist at RICS, said: “Although a clear majority of respondents now perceive the market to be in a downturn, the fact that capital value expectations are still positive in many parts of the country suggests a relatively soft landing for the commercial real estate sector is anticipated overall.

“It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.”

Tenant demand reportedly fell at the headline level with the net balance slipping to -19%.

Interest in the commercial property market fell at a faster pace last quarter with -15% more surveyors seeing a fall in investment enquiries.

By Michael Lloyd

Source: Mortgage Introducer

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Demand for commercial property at lowest level since 2012, says industry report

Demand for office space in the South West has slipped to its lowest reading since September 2012, the Royal Institute of Chartered Surveyors’ UK Commercial Market Survey has revealed.

The survey added that the current impasse over Brexit is contributing to perceptions that the South West commercial property market is in the downturn phase of the property cycle.

The RICS report for Q3 2019 said that enquiries from investors are down at headline level and that 53 per cent of respondents believe that the market to be on a downward trajectory.

Occupier demand in the South West fell at the headline level once again, with the net balance slipping to -19 per cent, the lowest reading since June 2012.

Once again, the retail sector continues to drive the overall decline (net balance -62 per cent, compared to -54% in Q2).

However, demand for South West office space also fell during Q3, with a net balance of -8 per cent compared to -1 per cent in Q2.

Demand for industrial space has a net balance in the region of +12 per cent.

The region’s retail sector continues to have large numbers of vacancies coming to market, prompting another increase in incentive packages on offer to prospective tenants.

Inducements are also on offer in the office sector with 17 per cent of respondents reporting a rise in the packages.

South West respondents to the survey project that rents for the coming three months are expected to rise in the industrial sector, the only sector to see any notable interest from tenants.

Unsurprisingly, the retail sector isn’t expected to improve, some 63 per cent of respondents in the region expect to see further reductions in rents across the market.

Across the UK, retail rents are reading at the lowest level since the financial crisis (Q1 2009).

Looking further ahead, local respondents expect prime and secondary retail rents to fall for the year ahead.

The outlook has turned negative for secondary office rents in the South West, driven by weakening expectations in London.

By way of contrast, the industrial sector continues to return rental growth projections for the coming 12 months in the region.

Interest in investing in the local commercial property market fell again this quarter, with -5 per cent more South West respondents seeing a fall in investment enquiries.

Overseas investment demand also declined across the sectors with a net balance of -9 per cent of respondents seeing a fall.

Tarrant Parsons, RICS Economist, said: “Although a clear majority of respondents now perceive the market to be in a downturn, the fact that capital value expectations are still positive in many parts of the country suggests a relatively soft landing for the commercial real estate sector is anticipated overall.

“That said, the fallout for retail is altogether more severe. It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.”

Martin Smalley of Gleeds in Bristol added: “Brexit unsurprisingly has created an atmosphere of uncertainty in the regions.

“There are however hotspots around areas of significant infrastructure investment like Hinckley Point C which is fuelling growth across the commercial, retail, industrial and residential sectors.”

By James Young

Source: Punchline Gloucester