The Q4 2018 RICS UK Commercial Property Market Survey results continue to display mixed fortunes across the South West, with changing shopping habits and uncertainty around politics remaining strong influences. The retail sector, with declines driven by the structural shifts in consumer preferences, is in stark contrast to the steady performance of the industrial sector over the quarter.
In Q4 all-sector occupier demand declined for the third consecutive month across the South West, as the net balance moved down to -12% from -1% previously. The headline reading continues to be weighed down by declines in demand across the retail sector (net balance -49%), although the Q4 results also point to a flat trend in demand for office space (net balance 2% from 12% in Q3). At the same time, demand increased steadily in the industrial sector, with a net balance of 11% of respondents noting an increase in demand over the period.
Given sustained demand growth, the availability of industrial space the South West continued to fall. Moving to retail, a net balance of 37% of respondents across the South West reported a rise in vacant space during Q4 2018.
Reflecting the decline in retail, respondents trimmed their expectations for rental growth in the near term, with a net balance of -42% of respondents expecting a drop in retail rents during the next quarter.
In terms of the investment market, enquiries unsurprisingly fell across the retail sector at the sharpest quarterly pace (net balance terms) since 2008. Meanwhile, the office sector also saw a slight drop in investor demand, while the South West industrial sector held steady.
Across the UK, there has been a noticeable increase in the proportion of respondents viewing the market as in some stage of a downturn. Nationally (even with both London and the South East excluded) a significant 41% of contributors responded that they view the market as in the early stages of decline. In London and the South East, a respective 71% and 69% of contributors sense the market is in the early to middle stages of a downturn. In the case of the latter, this is up from 53% in Q3, although London displayed a similarly high proportion of respondents taking this view six months ago.
Tarrant Parsons, RICS Economist, commented:
“The latest feedback suggests that the lack of clarity over the Brexit process remains a key factor weighing on the commercial property market, with potential occupiers adopting a wait-and-see approach before committing. This comes in addition to the ongoing structural changes which continue to take their toll on the retail sector, evidenced by the further rise in vacant space shown in Q4.”
“On the flipside, the industrial sector, which is a clear beneficiary of the shift towards online shopping, continues to attract solid demand growth from both investors and occupiers across all parts of the UK.”