Commercial property market buoyant as demand for industrial space rises

Both investor and occupier demand edged up during the third quarter of the year in Yorkshire and the Humber’s commercial property market, but demand for industrial space is still the most sought after commercial property in the region.

According to the Q3 2017 RICS (Royal Institution of Chartered Surveyors) UK Commercial Property Market Survey, investment demand for commercial property continued to pick up, and proved the strongest in the industrial sector, with 55% of respondents seeing an increase in enquiries (up from 40% in Q2), while 41% of respondents saw a rise in investment demand for offices and 9% saw a rise in enquiries to invest in retail space.

Although the weakest reading for investment demand was the retail sector during Q3, this was still an improvement on Q2, when no commercial surveyors in the region reported an increase in demand for retail property.

As domestic interest increases, interest from overseas buyers also rose across all areas of Yorkshire and Humber’s commercial property market during Q3, and near term capital value expectations point to growth for industrial and office commercial property assets, but little change for values across the retail sector.

Occupier demand in the third quarter of the year also increased in the industrial and office sectors, with 54% of respondents seeing a rise in enquiries to occupy industrial property (up from 39% in Q2) and 44% reporting an increase in demand to let office space (up from 33% in Q2). Meanwhile, occuiper demand continued to fall for the fourth consecutive quarter in the retail sector.

On the back of the lack of demand for retail property in Yorkshire and Humber, landlord incentive packages on offer to tenants rose during Q3 with 26% more respondents seeing an increase in incentives offered for retail property (up from 12% in Q2).

Given the more positive occupier demand picture for industrial and office property, 61% of commercial surveyors in Yorkshire expect rents for industrial space to rise over the coming three months, with 46% also anticipating rents for offices will also increase. Only 7% of respondents expect rents for retail property to rise over the next three months.

Looking further ahead 53% of respondents expect to see rents for all commercial property types rise over the coming 12 months, largely due to a lack of available good quality commercial space in the region. Only 8% of respondents noted a rise in new commercial property development starts in Yorkshire and Humber in Q3.

Simon Rubinsohn, RICS chief economist, said: “The feedback to our latest Commercial Market Property Survey reflects some of the broader macro issues, with the underlying momentum in the occupier market a little firmer further away from the capital. This is also mirrored in valuation concerns, with around two thirds of respondents viewing the London market as being dear, whereas the majority of Yorkshire and Humber respondents feel their local commercial property market is fairly valued at present.

“A key issue going forward will be how the market responds to the likely first interest rate rise in a decade next month. Given that expectations are only for a modest tightening in policy, the likelihood is that it will be able the weather the shift in the mood music. But this remains a potential challenge if rates go up more than is currently anticipated.”