Rent expectations upbeat for industrial and office space across the South West
Both investor and occupier demand edged up during Q3 in the South West’s commercial sector, but there is still a significant difference between sectors with industrial clearly outperforming, according to the Q3 2017 RICS UK Commercial Property Market Survey.
In Q3, investment demand for commercial property continued to pick up across the region, with 41% more respondents seeing an increase (rather than decline) in investment enquiries. Demand growth was strongest in the industrial sector. As domestic interest increases, interest from overseas buyers also rose across the majority of the market during Q3. Alongside this, near term capital-value expectations point to strong growth across industrial assets, a relatively strong rise in office prices, but are slightly negative across the retail sector.
Occupier demand in the quarter for the South West edged up at the headline level, with 8% more respondents seeing an increase as sentiment picks up. Looking at individual sectors, demand has increased strongly for industrial and office space in Q2. Meanwhile, demand continued to fall for the second consecutive quarter in the retail sector.
Given the occupier demand picture, it is unsurprising that near-term rent expectations indicate firm growth in the industrial and office sector and a marginally negative one for retail at the regional level. Looking further out, over the year ahead, rental expectations are positive for both prime and secondary industrial space, prime offices and, to a lesser extent, prime retail space. The outlook for secondary office space remains flat. Conversely, the year ahead rental expectations for secondary retail are firmly negative, with rents still anticipated to decline.
All-sector rent expectations in the near term are generally positive across the region and most parts of the UK, with London being the exception. In the capital, negative expectations in office and retail cancel out positive expectations for industrial rent.
In terms of valuations, across the region, a strong majority of contributors (92%) sense the market is fairly valued at present. Central London continues to exhibit the highest proportion of respondents viewing the market to be overpriced to some extent (67%).
Meanwhile, 37% of respondents from the South East are now of the opinion that values are stretched relative to fundamentals, a steady increase on 16% who were taking this view three quarters ago.
Finally, during Q3, although views remain mixed, the largest share of contributors feel conditions are consistent with the middle stages of an upturn (42%). In Central London, 73% of respondents sense the market to be in some stage of a downturn.