Retail sector hit by changing shopping habits while industrial sector benefits
A “lack of clarity” over the Brexit process remains a key factor weighing on the region’s commercial property market, according to a survey released today.
The Q4 2018 RICS UK Commercial Property Market Survey results continue to display mixed fortunes with changing shopping habits and uncertainty around politics remaining strong influences in the West Midlands.
The region’s retail sector, with declines driven by the structural shifts in consumer preferences, is in stark contrast to the strong performance of the industrial sector over the quarter.
In Q4, all-sector occupier demand was flat, as the headline reading continues to be weighed down by declines in demand across the retail sector (net balance -64%). Demand for the office sector increased in Q4 following the Q3 results where respondents reported a slight decline. At the same time, demand continued to rise in the industrial sector, with a net balance of +40% of respondents noting an increase in demand over the period.
Given sustained growth in demand, the availability of industrial space fell once more, with the survey’s indicator continuing to edge lower for a twenty eighth successive quarter. Alongside this availability is flat in the office sector for the West Midlands. Moving to retail, a net balance of 53% of respondents reported a rise in vacant space in Q4.
Following a pick-up in demand for the industrial and office sectors in the West Midlands, respondents have increased their expectations for rental growth in the near term, as the net balance increased to +3% compared to –9% in Q3.
In terms of the investment market, enquiries unsurprisingly fell across the retail sector, meanwhile, industrial assets continued to attract a rise in investor interest and demand held more or less steady for the office sector.
Alan Pemberton, of TFT in Birmingham, said:: “Despite the concerns surrounding Brexit, transactions in all sectors apart from retail in Birmingham and immediate surrounding commercial markets remain strong, although how this will continue in 2019 and beyond is difficult to predict.”
Moving to the cycle, there has been a noticeable increase in the proportion of respondents viewing the market as in some stage of a downturn. In the West Midlands, 31% of respondents suggest that the market is in the early stages of a downturn. Nationally (even with both London and the South East excluded) a significant 41% of contributors responded that they view the market as in the early stages of decline.
Tarrant Parsons, 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.”
