Online shopping causing growing divide between region’s struggling retail and booming industrial

The divide in the West Midlands’ commercial property market between retail property and the industrial sector is growing, according to a report released today.

The weakness in retail appears to be spreading across prime locations, with a challenging backdrop being reported across the whole of the region, the Q1 2018 RICS UK Commercial Property Market survey says.

As demand for retail property in the West Midlands dropped, availability in the sector rose significantly in Q1, with 58% more respondents noting an increase (as opposed to a decrease), the highest reading since Q2 2009. Retail landlords also raised the value of incentive packages to entice clients for a fourth consecutive quarter. This in contrast to a decline in the availability of industrial space, which has been unable to keep up with demand since 2013.

Looking at rent growth expectations in the region over the next three months, contributors expect to see the downward pressure on retail rents growing, alongside rising near term rent predictions in the industrial sector. The negativity across retail is pulling down the headline average for rent growth expectations, with just 2% more respondents predicting a rise rather than fall over the next three months, the lowest since Q2 2016.

Looking at the West Midlands retail sector in more detail, secondary retail rents are projected to decline over the coming year, while the outlook is flat for prime retail sites. Both prime and secondary industrial markets continue to display stronger rental projections over the year than all other sectors.

Turning to trends in the West Midlands’ investment market, headline enquiries rose for a seventh successive report, with investor demand increasing strongly for industrial assets, fairly for offices, but remaining relatively flat in the retail segment. Interest from foreign buyers meanwhile was flat across all sectors during Q1. The supply of property for investment purposes was flat this quarter in the industrial and office sectors. Supply of retail units bucked this trend, with supply increasing.

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 anytime 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.”

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