26 Jan 2016
Prices continue to rise as demand for commercial property remains strong in all sectors according to the most recent RICS Commercial Property Survey for Q4 2015.
- Investors seeking out the industrial sector as 87% more respondents forecast a rise in rents over the next 12 months
- Shortage of quality stock in the market as supply demand imbalance drives rents and capital values higher
- 81% of central London respondents now view the market as overpriced
- Development rises sharply in London office sector as the rest of the UK and other sectors see a flatter trend construction pipeline
Investment opportunities still strong
UK Commercial Property is still seen as a safe haven for investors with rents and capital values set to continue rising despite macro concerns, according to our latest UK Commercial Market Survey.
The survey reveals that with businesses across the UK thriving and with employment data still strong, the industrial sector has the greatest momentum in occupier demand. 43% more chartered surveyors are seeing a rise in demand for industrial space in Q4 2015, compared to 29% more seeing a rise rather than fall in demand for offices and 26% more seeing a rise in demand for retail.
As demand increases, supply has continued to decrease across the UK with the survey recording the eleventh consecutive quarterly drop in available space across the commercial property market. Development nationally has only increased marginally with anecdotal evidence suggesting that there is a lack of commercial construction activity in many locations.
As the survey indicated, the deepening skills crisis is playing a key role in inhibiting development. One notable exception to the low level of new build across the UK is in the London office sector, where development has risen sharply over the last three quarters. 34% more surveyors saw a rise rather than fall in office development starts in the quarter.
In the face of continued demand and lack of supply, rent expectations for the next quarter are strongly positive across all sectors with 35% more chartered surveyors projecting a rise in rents across all sectors. Industrial space was again the strongest performer with 43% more surveyors envisaging a further rise rather than fall in rents.
Looking at the investment market, buyer enquiries have risen in each sector albeit less than previously – significantly, the upward trend in foreign buyers has noticeably flattened. Notwithstanding this, capital values are forecast to rise further in all sectors of the market in both the near and longer term with prime office and industrial sectors most likely to outperform.
All sectors expecting rent increases
Looking further forward, all sector rents are set to continue to rise both in the medium and longer term. Over the next twelve months, respondents are most confident of seeing rental increases in the prime industrial market with 87% more respondents foreseeing a rise as opposed to a fall.
At the other end of the scale, secondary retail space exhibits the most modest reading on a sectoral comparison, but still posted a relatively healthy balance of +51% expecting rents to grow.
Regionally price expectations are positive across the UK, with the strongest performers expected to be London and the East – however, 81% of respondents in the capital now view commercial real estate in central London to be overpriced (slightly up on the 77% who took this view in Q3).
In another ongoing theme, and potentially putting pressure on smaller businesses or startups, is the lack of incentives available - the value of incentive packages on offer from landlords to tenants fell across each sector in Q4 2015 a trend in place for much of the past two years.
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