Pandemic continues to take its toll on region’s commercial property market

The global pandemic continues to take its toll on the West Midlands commercial market with latest figures pointing to a decline across the regions’ office, retail and industrial sectors.

In the second quarter, the Q2 2020 RICS UK Commercial Property Survey reveals that just over half of respondents (net balance -52%) saw occupier demand decline.

The region’s retail sector has seen the greatest drop off in interest with a -81% of respondents reporting a fall in demand. With an increase of people working from home, demand for office space also fell this quarter (net balance of -79%).

Although interest in the region’s industrial space fell in comparison to the previous quarter, +4% of respondents reported a rise in the region’s industrial space.

The lack of demand, in response to the economic fallout, means the near-term outlook for rents across the West Midlands commercial sector is now negative across the board.

Retail is expected to see the biggest decline (net balance of -86%) in rents over the next three months, and -11% of respondents are expecting industrial rents to fall. However, looking at the region’s office sector, over two-thirds of respondents (net balance of -69%) expect rents to fall in the coming three months, with only more respondents in Greater London expecting to see rents fall (net balance of -70%).

Contributing to the adverse sentiment around offices, 93% of respondents anticipate that businesses will scale back their space requirements in the coming two years.

Although interest in retail in general has fallen, some anecdotal evidence in the survey points to opportunity and interest in secondary units, in some instances perhaps due to the potential for conversion to housing as well as appetite from some independent businesses looking for space in local highstreets.  This is perhaps indicative of a broader shift around commercial location in the wake of the pandemic.

In another question asked nationally, respondents were asked if they felt demand for office space in suburban locations may rise in place of urban centres over the next two years. 64% felt this shift would occur.  This not only suggests there could be some significant changes in store for the office sector moving forward, but also interestingly, a potential driver for regional high streets.

Anecdotal evidence also suggests there will also be a shift to higher quality office space, with more focus on well-being and sustainability.

Looking further ahead, the twelve-month rental expectations for retail point to further decline, as rents are likely to fall by -9% and -12% for prime and secondary retail space over the coming year.

Respondents don’t anticipate any change in rents for the industrial sector. Finally, the region’s office space is set to see rents fall by -5.5% for prime office space and -7% for secondary space.

Tarrant Parsons, RICS economist, said: “The latest survey feedback unsurprisingly reflects the significant disruption and uncertainty that emerged across the economy during the lockdown period. With demand from both occupiers and investors falling sharply, respondents now anticipate rents and capital values will come under downward pressure while the market adjusts to a drastically changed economic environment.

“In particular, the recent shift into remote-working raises many questions across the office sector, with respondents expecting businesses to re-evaluate their office space requirements over the next two years. On a brighter note, the outlook is already showing signs of recovery across industrial sector, which remains set to benefit longer-term from an acceleration in the growth of ecommerce.”