Demand from overseas investors fell across all areas of commercial real estate during Q2 2019, the latest research from RICS has found.
This has fallen for the third quarter in a row, according to the RICS UK commercial property market survey. The headline net balance for investor demand during the quarter stood at -9%, easing slightly from Q1 (-15%).
Relocations on the rise
Meanwhile, a third of firms are looking to move all or part of their business out of the UK as the risks of a no-deal Brexit grow, compared with fewer than a quarter six months ago.
As Brexit looms, 32% of firms noted that businesses are seeking to relocate at least some or part of their operations as a result.
Although static on Q1, this is up from 23% six months ago. Going forward, 52% expect there will be relocations, depending on how the Brexit process unfolds.
Retail values to fall further
By sector, rents and asset values are predicted to drop even further in prime and secondary retail.
On the other hand, further solid growth in capital values is expected across the prime industrial and office sectors. Secondary industrial assets are anticipated to see price gains, although the outlook is flat for secondary office values.
Generally, all-sector rents are forecasted to dip over the coming months, since the outlook for the retail sector remains negative. Prime and secondary rents in retail are predicted to fall by around 3.5% and 7% respectively in the next 12 months.
Prime industrial rents are expected to rise by around 3% in the next 12 months, with secondary at around 1.5%.
For prime offices, around 2% rental growth is expected, while the outlook has stayed flat to marginally negative for secondary office rents.
Occupier demand remained in negative territory for the fifth quarter in succession. Retail was identified as the main culprit for pulling the figure down below zero, with a net balance reading of -59%.
Demand for offices stayed mostly static, and industrial demand increased sharply.
Aligning with this, the retail sector posted the most significant rise in vacant units. Both retail and office landlords have raised the value of tenant incentive packages, with the increase most pronounced for the former.
Tarrant Parsons, economist at RICS, said: “The overall picture remains little changed across the UK commercial property market in Q2, with the disparity between a strong backdrop for the industrial sector and weakness in retail still very evident.
“While expectations continue to point to solid rental and capital value growth in the former, further declines are expected in the latter. Brexit uncertainty also remains a notable headwind, causing caution across both occupiers and investors while they await clarity on the UK’s future trading relationship with the EU.”
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