Demand for space from tenants has fallen to a net balance of -10%, according to the latest RICS UK commercial property survey, down from +17% in Q2.
The latest results from the survey, which measures reports of occupier demand increasing versus reports of decreasing demand to create a net balance figure, end five successive quarters of growth, with almost all parts of the UK seeing a downward trend for tenant demand in office and retail space.
Nationally, demand for industrial space is still positive (net balance +21%), although this has eased in each of the past three surveys. Industrial demand was at +61% in Q4 last year, said the RICS.
Nine out of 10 survey respondents said they expected businesses to scale back at least some of their office footprint over the next 12 months, with one-third believing this reduction will be between 5% and 10%. The same figure believe this trimming in office footprints could be between 10% and 20% over the year.
In the investment market, a headline net balance of -18% of respondents cited a decline in buyer enquiries during Q3. This represents the weakest return for this metric since Q2 2020.
The 12-month outlook shifted markedly during Q3 for capital values. Projections for prime office values turned negative, with the net balance falling to -21% from +15% last quarter. For secondary offices, a net balance of -51% of respondents foresees a value decline compared with -26% in Q2. For retail, already negative projections were downgraded further, with a net balance of -49% of contributors anticipating prime retail values falling in the year ahead. The the net balance stands at -65% for secondary.
Around 40% of UK respondents now feel the commercial property market is priced above fair value, a steady increase with just 29% taking this view at the end of last year. This share is much higher in London, at close to 60%.
RICS economist Tarrant Parsons said: “Deteriorating conditions across the UK economy are having an increasingly noticeable influence on the UK commercial property market, with higher interest rates, and the prospect of more to come, now clearly weighing on investor demand.
“The weaker survey feedback is particularly evident in the retail sector, as the cost-of-living crisis and falling consumer confidence takes its toll on household spending. Likewise, the office sector has also seen a renewed decline in demand, with ongoing structural changes to working patterns brought about by the pandemic further exacerbating the broader cyclical downturn in the economy.”
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