Changing the use of South West’s commercial buildings needs increase in flexibility and less red tape

RICS urges Government to re-examine commercial use classes to aid flexibility going forward, as the Q1 2020 RICS UK Commercial Survey results point to a sharp deterioration in market sentiment across the South West, particularly in retail.

Following what appeared to be a promising start to the year for the commercial market across the UK, social distancing measures and forced business closures have now severely restricted activity and will continue to weigh heavily on the outlook over the coming months.

Looking at occupier demand, it is worth noting that social distancing measures were ramped up significantly in the middle of the survey collection window. Separating pre and post lockdown responses at the national level there is a marked deterioration in feedback post lockdown*. In the South West, Q1 as a whole saw 24% more respondents reporting a decline in demand with net balances of -56% for retail; and -22% for office space. Conversely, demand for industrial space saw a rise, with a net balance of +5%.

Moving then to availability, retail saw a sharp rise in availability in the region, but offices and industrial space saw a decline.

Against this backdrop, the near term expectations for rent saw 31% more respondents predicting a fall rather than rise in rents across South West commercial property. This however, is markedly different cross sector with retail seeing the largest fall. The sector figures 67% more respondents predicting a fall in retail rents, and 18% predicting a fall rather than rise in office rent. Despite a seemingly more positive picture for industrial space in the region, industrial rents are also expected to fall.

The picture looks unlikely to pick up over the next 12 months, with predictions for rent in the South West negative across all sectors baring prime industrial which is more or less flat. Retail is once again, hit hardest, with secondary retail rents predicted to fall by around 9%, while the outlook is not much better for prime retail rents at just over 7%.

Moving to interest from investors in property in the region, enquires continued to slip over the quarter. Overseas investment demand mirrored this picture.

Simon Rubinsohn, RICS Chief Economist, commented: “The seismic nature of what is currently taking place in the commercial property sector should not be underestimated. Structural changes already underway particularly around ecommerce will be exacerbated, hitting the high street hard. But alongside this, the inevitable rise in agile working as businesses seek to build resilience against future pandemics will undoubtedly lead to a reassessment of demand for office space.

“Against this backdrop, it is critical that the government engages with the industry to build a collaborative approach to addressing the challenges and help to facilitate the transformation of the commercial property estate to something that better reflects the needs of a twenty-first century economy and also the continuing shortfall of good quality housing across all tenures.”

Tony Mulhall, Associate Director, Planning & Development, added: “In the light of current events, there is even more of a need to rethink commercial property use-class regulation, which was produced in response to more static conditions, and make the case for greater flexibility.

“However, it is critical to ensure that this change is supported by the application of proper design and construction standards to ensure the end product, be it retail, office, residential or any other segment of the market is truly fit for purpose.”