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

The divide between retail property and industrial space in Yorkshire and Humber is growing, according to a new survey from RICS.

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

While 36% of commercial surveyors in Yorkshire and Humber noted an increase in occupier demand for industrial property in the first quarter of the year (Q1 2018) – up from 32% in the last quarter of 2017 –  33% reported a lack of available industrial space.

Meanwhile, demand for retail space in the region not only declined further, but at an accelerating rate. A net balance of 50% of respondents saw a fall in demand for retail property, which is the weakest reading in a decade.

As demand for retail property in the region dropped, availability in the sector rose significantly during Q1 2018, with 54% more commercial surveyors noting an increase in available retail space in the region. Consequently, over half of retail landlords (54%) offered incentive packages to entice clients during the first quarter of the year (up from 10% back in Q4 2017).

Looking at rent growth expectations over the next 12-months; 41% more respondents in Yorkshire and Humber predict a fall in retail rents, while the outlook for industrial rents appears comfortably positive with 72% expecting rents to rise.  The outlook for offices in the region over the next 12-months is also positive, with 52% of commercial surveyors in Yorkshire and Humber anticipating a rise in office rents over the coming 12-months.

Looking at the sector in more detail, secondary retail rents are projected to decline in all parts of the UK – including Yorkshire and Humber – 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 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.”