The latest RICS UK commercial market survey has shown positive rental and capital growth projections, with sentiment strongest across the industrial sector.
Overseas investment grew across all sectors in Q1, with buyers showing a slight preference for industrial space. The industrial sector performed strongly in terms of capital value expectations with 44% more respondents anticipating prices to rise over the next three months – the highest reading since Q4 2015.
Headline investment demand has now turned positive in most parts of the UK, the survey found. Scotland was an exception, although enquiries did at least stabilise in Q1, having fallen in each of the three previous quarters. Feedback in Scotland highlighted uncertainty surrounding a second independence referendum as a potential challenge to the market.
In central London, investment enquiries rose at their sharpest pace since the closing stages of 2015, while demand from overseas buyers continued to increase across all sectors. Northern Ireland was the only part of the UK to see a fall in overseas investment enquiries, marking the fourth straight quarter of declining demand.
National tenant demand was strongest in the industrial sector, with 28% more respondents seeing a rise in demand. Office and retail appeared flatter in comparison. Demand for offices saw a 1% fall and retail saw a 4% rise. Given the demand-and-supply dynamics, rents are expected see the strongest growth in the industrial sector, both over the next three months, and at the 12-month horizon. At the same time, offices are expected to see only modest growth, while rents are expected to hold steady in retail.
Rental expectations for the year ahead in London are negative in both the prime and secondary office sectors across the capital. Secondary retail rents are also projected to decline but prime retail space may prove more resilient.
Simon Rubinsohn, RICS’s chief economist, said: “The results of the latest commercial property survey chime with much of the recent generally more positive economic news flow. Significantly, the forward-looking indicators are also proving resilient although it would not be a surprise if activity slows ahead of the forthcoming General Election.
“Although around one-sixth of respondents continue to report enquiries from British businesses looking to find space to utilise elsewhere in the EU, foreign investment into the UK is continuing to recover, with the RICS overseas demand indicator rising for all sectors at a headline level and in most parts of the country.”
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