1 NOV 2019
The latest RICS Commercial Property Monitor for 2019 Q3 suggests overall steady momentum for occupier and investment sentiment. The combination of short-term supply, demand and expectations indicate flatness, albeit with some areas of strength. However, while market conditions remain generally solid for office and industrial sectors, the ongoing shift toward online shopping is contributing to negative metrics in the beleaguered retail market for the third straight quarter, with a fall in tenant and investor enquiries.
Looking to 2020, rental projections point to strong gains across the office and industrial sectors, though the outlook for prime locations is slightly more optimistic than those in secondary markets. In retail, there are expectations of a modest uptick in retail rents in prime markets for the next 12 months, while rent values are projected to fall over that same period.
"While there is an industry-wide effort to invest in and transform real estate for a more connected and sustainable future, these innovations in how people live, work and play aren't yet the standard, especially outside prime markets," said Neil Shah, Managing Director for RICS in the Americas. "What this means for the overall retail sector is continued underperformance, particularly in secondary markets, in comparison to the office and industrial spaces."
Aside from retail, 12-month capital values projections are positive across all non-retail sectors in the study, though secondary markets are instilling considerably less confidence. While primary office projections have held firm since Q2, primary industrial projections have cooled, despite ongoing positive sentiment. This aligns with the majority of respondents believing that the market is in the peak phase of the property cycle. This is up from 49 percent in Q2 and 41 percent in Q1.
"Real estate leaders are increasingly believing that, after a protracted period of growth, the market is now approaching the top of the cycle," said Tarrant Parsons, Economist with RICS. "While indicators are still generally solid for other sectors, the troubles in the retail sector show no signs of abating. The downward demand trends, particularly in secondary locations, is likely to result in a significant decline in capital values over the year to come."
RICS U.S. and Global Commercial Property Monitors are a quarterly guide to the trends in the commercial property investment and occupier markets. Survey questionnaires opened on September 13, 2019 and closed on October 13, 2019. Respondents were asked to compare conditions over the latest three months with the previous three months, as well as their views on the overall market outlook. The full U.S. and global Q3 reports are available from the RICS website at www.rics.org/economics, along with other surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.
"While there is an industry-wide effort to invest in and transform real estate for a more connected and sustainable future, these innovations in how people live, work and play aren't yet the standard, especially outside prime markets. What this means for the overall retail sector is continued underperformance, particularly in secondary markets, in comparison to the office and industrial spaces."
Managing Director for RICS in the Americas