Improving market confidence boosts demand for commercial property

DEMAND for all types of commercial property in the region increased in the third quarter, boosted by growing confidence.

The Q3 Royal Institution of Chartered Surveyors (RICS) UK Commercial Market Survey 2016 shows that industrial property was the most sought after commercial property type during the third quarter with 33% of respondents in the region reporting a rise in demand (up from 13% in Q2).

Office space was the second most popular commercial property choice during Q3 with 14% of respondents seeing an increase in demand (up from 5% in Q2).

Meanwhile demand for retail space also grew in Q3, albeit modestly, with 5% of respondents reporting an increase in demand (up from 3% in Q2).

Capital value expectations also recovered noticeably.  Over the next 12 months, 19% more respondents expect capital values to increase, with prime industrial and office markets expected to see the strongest gains.  

However, despite demand for commercial property increasing in the region – and capital values expected to increase – more chartered surveyors in Yorkshire and Humber reported a further drop in availability of all commercial property types during Q3. The number of new development starts also fell during the last quarter of the year too.

Looking ahead, increasing demand for commercial property coupled with limited prime stock is likely to push rents higher over the coming year. Over half of respondents (57%) anticipate a rise in rents for prime industrial property over the next 12 months, with 43% also expecting to see rents for prime office space increase, and 29% are confident rents for prime retail outlets will rise further.

As to the issue of whether firms may relocate all or part of their activity away from the UK – in response to the referendum outcome – 29% of chartered surveyors in Yorkshire and Humber reported evidence of seeing local firms looking to move part or all of their business out of the country.

Richard Corby, director at Lambert Smith Hampton, said: “Confidence in the region’s commercial property market is improving week by week. Beyond 2016, much will depend on what the details of a Brexit ultimately looks like. But UK property is fundamentally in a much stronger position than it was in 2008 and there is much to be confident about in the long term.  Investors who can look beyond the immediate uncertainty will be well placed to benefit from what remains an attractive asset class.”

Simon Rubinsohn, RICS chief economist, added: “The latest results suggest that the commercial market has subsequently settled down which is broadly consistent with much of the other macro news flow that has emerged over the past few months. In particular, the rebound in our occupier demand indicator suggests that for at least the time being, the UK economy is proving relatively resilient.

“Interestingly, the feedback we have received was noticeably more cautious in Scotland and parts of London but despite this, the RICS results do suggest that the drop in the pound is encouraging foreign investors to show interest in the market particularly in the capital.”

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