Demand for North West offices, industrial warehouses and retail units fall

Demand for offices, retail space and industrial property in the North West fell during the past quarter of the year.

That is according to the first quarter 2019 RICS (Royal Institution of Chartered Surveyors) UK Commercial Property Market Survey.

Alongside this, anecdotal evidence suggests a lack of movement on Brexit continues to deter investors and occupiers across the board.

The North West’s retail sector continued to struggle during the past quarter of the year, with 45% of commercial surveyors in the region reporting a decline in demand from occupiers for retail space.

Meanwhile, 13% of respondents reported a rise in demand for office space (down from 14% the previous quarter) and 26% saw an increase in demand for industrial property, including warehouses (down from 31% in Q4 2018).

As demand for all commercial property types in the North West fell during Q1 2019, respondents also reported a rise in the number of vacant offices in the region.

However, available industrial property is still proving hard to come by, with respondents reporting a fall in available warehouses and industrial units during the past quarter of the year.

Interestingly, although demand for retail premises in the region is declining, 38% of respondents reported a rise in vacant retail units during Q1 2019 (down from 54% in Q4 2018), demonstrating that retail space is still being taken up in the region, but perhaps just at a slower pace.

Inducement and incentive packages from retail and office landlords picked up during the past quarter of the year, and the value of incentive packages has increased.

Close to 50% of respondents saw a rise in retail inducements during Q1 2019, while 20% saw a rise in incentives to take-up office space.

Over the next 12-months contributors are anticipating further growth in rents across prime industrial property (62%) and secondary industrial (40%).

While, for offices, 40% of respondents expect to see a rise in rents for prime Grade A office space over the coming year, with a more modest 11% expecting to see rents rise – over the same time-period – for secondary office space.

In contrast, rents for prime and secondary retail space are not expected to increase over the next 12-months.

This pattern of positive rental growth in industrial and negative for retail is replicated across all parts of the UK. The office sector is more nuanced, although prime office rents are seen rising across the majority of regions.

As the Brexit debate rumbles on, domestic investment enquiries for commercial property in the region declined during the last quarter of the year.

Retail was responsible for most of this decline, followed by offices. Meanwhile, buyers are still keen for industrial units and investment demand for this sector remained positive with 18% of contributors seeing a rise in investment enquiries for such space.

Investors are predicted to see prime industrial assets posting the strongest capital value gains on a sectoral comparison over the coming year.

Overseas investment demand declined across each area of the market during Q1 2019, as 33% of respondents said they had seen evidence of firms looking to relocate some part of their business as a result of Brexit. Going forward, a slim majority (53%) of respondents nationally do now expect relocations to occur.

Mark Clarkson, of Eckersley in Preston, said: “The market remains challenging with a severe lack of stock based on funding challenges relating to property, increasing costs with values not following at the same pace, and some confidence issues due to political uncertainty.”

Tarrant Parsons, RICS economist, said: “Trends across the UK commercial property market in the early part of 2019 have continued in a similar vein to those reported last year.

“The industrial sector remains a clear area of strength in some areas, while the retail sector continues to be challenged by the growth in e-commerce.

“Brexit uncertainty is again cited to be a negative influence on market activity, causing some occupiers and investors to hesitate as they await further clarity on the future direction of policy.”

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