Tough outlook for commercial property sector
THE Covid-19 pandemic and its economic fallout are driving down rents and occupier interest across the commercial property sector in Wales.
The latest commercial property survey from RICS UK shows in the Q2 of this year a net balance of minus 75% of respondents reported a decline in occupier demand.
Each sector covered saw falls, allow the decline in tenant demand was most felt in retail and office space, with balances of -100% and -64% respectively. A fall was also seen in demand for industrial units, with 62% more respondents seeing a decline.
This is the first time that the industrial market has seen a decline since December 2012.
Given the economic fallout and lack of demand from tenants and business, the nearterm outlook for rents is now negative across the board in Wales, deteriorating further since Q1.
A net balance of minus 62% of survey participants expect retail rents to decline in the coming three months, the poorest reading since June 2010. In the office sector, a net balance of minus 54% (Q1 minus 27%) are predicting a further fall in rents.
Contributing to the adverse sentiment around offices, across the UK, 93% of respondents anticipate that businesses will scale back their space requirements in the coming two years. Having been positive in previous survey data, a net balance of -33% now expect industrial rents to decline.
Although interest in retail in general has fallen, some anecdotal evidence in the survey for the UK as a whole points to opportunity and interest in secondary units, in some instances perhaps due to the potential for conversion to housing, as well as appetite from some independent businesses looking for space in local high streets. This is perhaps indicative of a broader shift around commercial location in the wake of the pandemic.
Looking further ahead, 12-month rental expectations in Wales now stand at 2.9% and 5.6% for prime and secondary office space, and secondary retail rents are seen falling by 13% while prime retail rents are seen posting declines of around 10%.
Sentiment is much more resilient across the industrial sector, although rents in secondary locations are seen falling by around 2.3% in the year to come, prime industrial rents are expected to remain flat.
Tarrant Parsons, RICS chief economist, said: “The feedback reflects the disruption and uncertainty that emerged across the economy during lockdown. With demand from both occupiers and investors falling sharply, respondents now anticipate rents and capital values will come under downward pressure while the market adjusts to a changed economic environment.”