Demand for industrial property and offices increases in the North West

Demand for industrial property and offices in the North West increased during the last quarter of 2018, while interest in the region’s available retail premises continued to fall, driven by changing shopping habits and political uncertainty.

This is according to the quarterly RICS UK Commercial Property Market Survey.

During the last quarter of the year, 32% of the region’s commercial property surveyors reported a rise in occupier demand for industrial property, up from 24% in Q3 2018, while 15% also saw an increase in demand for offices, up from 12% in the previous quarter.

However, more than half of respondents (51%) reported a fall in demand for retail premises in the North West in the last quarter of 2018, up from 39% in Q3 2018, reflecting the changing face of the high street.

Despite demand for industrial units and offices increasing during the last quarter of the year, commercial property surveyors in the region reported a lack of availability for both property types.

Yet available retail premises continued to edge up in Q4 2018, with 42% of respondents seeing an increase in available retail space, up from 30% in Q3 2018.

Reflecting the decline in retail, respondents trimmed their expectations for rental growth in the sector, with 42% expecting rents for prime retail space to fall over the coming 12 months and 52% anticipating rents for secondary retail stock to fall over the same time frame.

Rent expectations for industrial and office space are more positive, with 65% of respondents expecting to see rents for prime industrial units increase during the year ahead, and 47% anticipating a rise in rents for prime office space over the next 12 months.

In terms of the investment market, enquiries, unsurprisingly, fell across the retail sector, and at the sharpest quarterly pace, net balance terms, since the beginning of 2016, with 43% of respondents reporting a fall in retail investment enquiries.

Meanwhile, industrial assets and office space in the region continued to attract investor interest.

Moving to the cycle: 36% of commercial property surveyors in the North West said they believe the commercial property market in the region is in the early to middle stages of a downturn.

In comparison, in London and the South East, a respective 71% and 69% of contributors sense the market is in the early to middle stages of a downturn.

Andrew Taylorson, of Preston-based Eckersley Property, said: “There remains a shortage of good industrial stock across the region.

“The lack of investment in new development is a concern. The office market is turning over but there’s no real evidence of rental growth, just surplus space absorbing demand.

“The retail market is best described as challenging.”

Kevin Tobin, of Manchester-based Jacobs, added: “The high street continues to see the ongoing retail decline and I expect to see a number of large department store chains struggle over the next 12 months.

Retail sector is flagging

“City and town centres need to totally re-think how they work and what their main function should be. Large, bold, and decisive investment will be required quickly to prevent town centres becoming ‘forgotten’ spaces.”

Commenting on the survey results, Tarrant Parson, RICS economist, said: “The latest feedback suggests that the lack of clarity over the Brexit process remains a key factor weighing on the commercial property market, with potential occupiers adopting a wait-and-see approach before committing.

“This comes in addition to the ongoing structural changes which continue to take their toll on the retail sector, evidenced by the further rise in vacant space shown in Q4.

“On the flipside, the industrial sector, which is a clear beneficiary of the shift towards online shopping, continues to attract solid demand growth from both investors and occupiers across all parts of the UK.”