RICS UK Commercial Property Market Survey of the Country
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Economics Q4 2018: UK Commercial Property Market Survey Structural change and politics remain heavy influences • Tenant demand for retail space still falling sharply, contrasting with growth in the industrial sector • Industrial the only sector displaying positive rental and capital value expectations in the near term • Proportion of respondents sensing the overall market is in some stage of a downturn increases The Q4 2018 RICS UK Commercial Property Market Survey of the country. Indeed, the twelve month rental outlook is results continue to display mixed fortunes across the three positive for the industrial sector right across the UK, while traditional sectors. Indeed, the strong performance of the expectations remain steeped in negative territory for retail. industrial sector remains in stark contrast to that of retail, Perhaps one distinction that can be made is in London, driven by the structural shift in consumer spending habits. where prime office rental projections are flatter (albeit still Meanwhile, survey participants continue to highlight political slightly positive) than is the case for most regions. uncertainty to be holding back activity, with the lack of clarity causing decisions to be delayed. In terms of the investment market, enquiries reportedly fell across the retail sector at the sharpest quarterly pace (net During the final three months of 2018, all-sector occupier balance terms) since 2008. Meanwhile, industrial assets demand reportedly declined for the third consecutive quarter, continued to attract a rise in investor interest, although the as the net balance inched down to -13% from -9% previously. pace of growth was more moderate than that seen over the Although the negative headline reading continues to be past year. Having increased fractionally in Q3, demand held weighed down significantly by the sharp fall in tenant demand more or less steady for the office sector this time around. across the retail sector (net balance -58%), the latest results With regards to demand from overseas buyers, there was not also point to a slight decline in demand for office space (net much change reported in any of the three sectors covered by balance -9%). At the same time, demand continued to rise the report during Q4. smartly across the industrial sector, with a net balance of +21% of respondents noting an increase over the period. The supply of property on the market for sale was steady at the headline level. This represents the first occasion since Given this sustained growth, availability of industrial space the series was introduced in 2014 in which a decline has fell once more, with the survey’s indicator on vacant supply not been noted. The rise in retail properties for sale was continuing to edge lower for a twenty sixth successive offset by a decline in industrial stock, while little change was quarter. Alongside this, having remained broadly stable over seen across the office sector. Twelve month capital value the past two years, availability picked-up in the office sector projections were broadly unaltered across most sub-sectors (albeit marginally). Nevertheless, it is within the retail sector compared with Q3, although expectations for growth in the where the increase in vacant space is most acute, evidenced industrial sector were trimmed slightly. Nevertheless, prime by a net balance of 46% of respondents reporting a rise in industrial assets are still envisaged posting the strongest Q4 (the joint highest since 2009). Meanwhile, retail and office gains on a sectoral comparison by a comfortable margin. landlords opted to increase incentives on offer to tenants, while those across the industrials sector kept inducements From a regional standpoint, prime office capital value unchanged. expectations actually improved in London (flat previously), although secondary office values are still seen coming under Respondents trimmed their expectations for rental growth in some downward pressure. It is also worth noting that some the near term at the headline level, as the net balance eased of the optimism around the outlook for secondary industrial to -7% compared to -2% in Q3. Even so, the underlying values has faded over recent quarters in both London and pattern remains closely aligned with that seen over the past the South East, albeit projections remain modestly positive two quarters. Rents are anticipated to continue rising in the nonetheless. Unsurprisingly, retail sector capital values, both industrial sector, while remaining unchanged for offices, with for prime and secondary locations, are expected to fall further rents seen declining further for retail premises. Over the in all parts of the UK. next twelve months, rental expectations remain comfortably positive across both the prime and secondary industrial Sticking with London and the South East, a respective 71% markets, and are firmly negative across the board for retail. and 69% of contributors sense the market is in the early to Prime office rents are still envisaged rising in the year ahead, middle stages of a downturn. In the case of the latter, this is although expectations have now turned marginally negative up from 53% in Q3, although London displayed a similarly for secondary offices. high proportion of respondents taking this view six months ago. Nevertheless, nationally (even with both London and the Looking at the broad regional breakdown reveals the South East excluded) a still significant 41% of contributors are national picture is mirrored to a large extent in most parts of the opinion the market is turning down. To receive a free copy of this report on the day of release e: [email protected] rics.org/economics Q4 2018: UK Commercial Property Market Survey rics.org/economics Commercial property - all sectors Occupier Demand Availability Net balance % Net balance % 60 80 40 60 20 40 0 20 -20 0 -40 -20 -60 -40 -80 -60 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Rent Expectations Inducements Net balance % Net balance % 60 100 40 80 20 60 0 40 -20 20 -40 0 -60 -20 -80 -40 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Investment Enquiries Capital Value Expectations Net balance % Net balance % 60 60 40 40 20 20 0 0 -20 -20 -40 -40 -60 -60 -80 -80 -100 -100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2 © RICS Economics 2019 Q4 2018 Q4 2018: UK Commercial Property Market Survey rics.org/economics Commercial property - Sector Breakdown Occupier Demand Availability 80 Net balance % 80 Net balance % 60 Office 60 Industrial Office Retail 40 Industrial Retail 40 20 0 20 -20 0 -40 -20 -60 -40 -80 -100 -60 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Rent Expectations Inducements Rent Expectations by Sector 100 Net balance % 80 Net balance % Office 80 Industrial 60 Office Retail Industrial 60 40 Retail 20 40 0 20 -20 0 -40 -20 -60 -40 -80 -100 -60 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Investment Enquiries Capital Value Expectations 80 Net balance % 80 Net balance % 60 60 Office Industrial 40 40 Retail 20 20 0 0 -20 -20 -40 -40 Office -60 Industrial -60 Retail -80 -80 -100 -100 -120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3 © RICS Economics 2019 Q4 2018 Q4 2018: UK Commercial Property Market Survey rics.org/economics Commercial property - Additional Charts 12 Month Capital Value Expectations 12 Month Rent Expectations 60 Net balance % 80 Net balance % 45 65 Q3 2018 50 30 Q4 2018 Q3 2018 35 Q4 2018 15 20 0 5 -15 -10 -30 -25 -45 -40 -60 -55 -75 -70 Prime Office Secondary Prime Secondary Prime Retail Secondary Average Prime Office Secondary Prime Secondary Prime Retail Secondary Average Office Industrial Industrial Retail Office Industrial Industrial Retail Market Valuations Property Cycle 70 % of Respondents % of Respondents 60 Peak, 15% 50 Q3 2018 40 Q4 2018 Early Downturn, 35% Mid-Upturn, 12% 30 Early Upturn, 10% 20 10 Bottom, 7% 0 Very Cheap Cheap Fair Value Expensive Very Expensive Mid-Downturn, 21% Extra Question 1 Extra Question 2 Have you seen any evidence of firms looking to relocate away from the UK in Do you expect to see firms relocating away from the UK over the next 2 years? response to the Brexit vote? 90 % 60 % 80 50 70 60 40 50 30 40 30 20 20 10 10 0 0 Yes No Yes No 4 © RICS Economics 2019 Q4 2018 Q4 2018: UK Commercial Property Market Survey rics.org/economics Chartered Surveyor market comments East Midlands Gilbert Harvey, Kettering, Chris Wilkins, Luton, Sam Kingston, Norwich, Roche Budworth Hardcastle, gharvey@ Ashridge Estates Ltd, chris@ Chartered Surveyors, sam. Ben Coleman BSc budorthhardcastle.com - The ashridgeestates.co.uk - The kingston@rochesurveyors. FRICS, Northampton, Ben level of logitics activity by uncertainty over where the co.uk - The market has cooled Coleman Associates, ben@ occupiers, and investment economy is going will continue considerably over the past 3 bencolemanassociates.co.uk - transactions within this sector in whilst there is no agreed Brexit months, due to uncertainty Brexit. particular, have been extemely plan. surrounding Brexit. However, high over the last 12 months with limited supply of office Brendan Bruder BSc MRICS, within the East Midlands. Guy Gowing MRICS, Norwich, and industrial property, there Northampton, Abbey Ross Arnolds Keys LLP, guy.gowing@ shouldn’t be any lowering of Chartered Surveyors, brendan.