Online shopping causing growing divide between NW struggling retail and booming industrial sectors
The divide between retail property and industrial space in the North West is growing, according to the first quarter 2018 RICS (Royal Institution of Chartered Surveyors) UK Commercial Property Market survey.
The weakness in retail appears to be spreading across prime locations, with a challenging backdrop being reported across the whole of the UK.
High street retailers are suffering from rising costs and falling sales. Fashion chain New Look, department store chian Debenhams and ToysRUs are facing problems, while House of Fraser is reportedly considering asking landlords for a reduction in rental rates.
While 42% of commercial surveyors in the North West noted an increase in occupier demand for industrial property in the first quarter of the year – up from 40% in the last quarter of 2017 – 31% also reported a fall in availability of industrial space.
Michael Fisher, of Fisher Wrathall in Lancaster, said: “Demand for industrial space is continuing to grow, making the lack of such available space an increasing issue and concern.”
Meanwhile, demand for retail space in the region declined once more during the first quarter of the year, with 28% of respondents reporting a fall in demand for retail property, which is the weakest reading since 2012.
As demand for retail property dropped, availability in the sector rose significantly during the first quarter, with 33% more respondents noting an increase in available retail space in the North West, up from 12% in quater four 2017.
Consequently, 22% of retail landlords offered incentive packages to entice clients during the first quarter of the year.
Charles Fifield, of Fifield Glyn in Cheshire, said: “Whilst office and industrial markets seem to have a reasonable level of demand, retail is still proving to be difficult, especially for traditional high streets which continue to be affected by the convenience of internet shopping and out of town retail.”
Looking at rent growth expectations over the next 12-months, more commercial surveyors in the North West predict retail rents will continue to fall, while the outlook for industrial rents appears comfortably positive with 50% expecting rents to rise over the year ahead.
The outlook for offices in the region over the next 12-months is also positive, with 38% of respondents anticipating a rise in office rents over the coming 12 months.
Furthermore, looking at the sector in more detail, secondary retail rents are projected to decline in all parts of the UK – including the North West – over the coming year, while the outlook is patchy at best for prime retail sites. Both prime and secondary industrial markets continue to display stronger rental projections over the year than all other sectors.
Simon Rubinsohn, RICS chief economist, said: “It has been hard to escape the grim news from the high street in recent months with a whole host of well-known names either closing down or looking to scale back their footprint.
“The results from our latest survey of chartered surveyors suggests that this challenging environment is unlikely to let up any time soon.
“Indeed, the feedback regarding what may be described as secondary retail locations points to further falls in rents over the coming year with landlords under pressure to increase ‘sweeteners’ to keep tenants in place.
“The flipside of this is the positive trend in high quality well located logistic/industrial sites which continue to be sought after by both potential occupiers and investors, despite recent price moves.
“Indeed, the likelihood is that the more desirable locations will get even more expensive as the change in our shopping habits continues to advance.”
