Q3 2017: UK Commercial Property Market Survey

Industrial sector remains strong while retail struggles

• Rent expectations firm for industrial space, neutral across offices and marginally negative for retail
• Pick-up in investment demand supporting modestly positive capital value expectations
• London continues to display more cautious sentiment relative to the national average

The Q3 2017 RICS UK Commercial Property Market Survey results, on balance, show a slight improvement relative to the previous quarter. Indicators capturing both investor and occupier demand edged up during Q3, while near term capital value and rental growth expectations
were somewhat more positive. That said, there is still a significant divergence across sectors, with industrial clearly outperforming while the backdrop for the retail sector remains more challenging.
At the national level, headline occupier demand held more or less steady, as a net balance of only +5% of respondents noted an increase over the quarter. That said, this does mark a modest improvement on the figure of -2% in Q2. When broken down, tenant demand increased strongly across industrial space (net balance +28%) and stabilised in the office sector, having fallen in Q2. Meanwhile, demand continued to fall for the second consecutive quarter in the retail sector, posting a reading of -16% (-15% previously). At the same time, availability of leasable space declined markedly in the industrial segment once again, and saw little change across both
office and retail sectors.

Landlord incentives on offer to tenants in the office sector increased for a fifth successive period during Q3. Retail
inducements also picked up, marking the second quarter running in which they have done so. By way of contrast, incentives continued to decline in the industrial sector. Given this, near term rent expectations point to firm growth in the industrial sector, and a broadly flat outturn for office rental values. In the retail segment, projections remain marginally negative at the headline level. Over
the year ahead, rental expectations are positive for both prime and secondary industrial space. The same is true for prime offices and to a lesser extent prime retail space. The outlook for secondary offices remains flat. Conversely, the results for secondary retail were firmly negative, with rents still anticipated to decline over the coming twelve months.

With regards to the regional breakdown, near term allsector rent expectations are generally positive across most parts of the UK. London is again the exception, where negative projections in the office and retail sectors are cancelling out positive expectations for industrial rents. Over the next twelve months in the capital, it is the secondary retail and office portions of the market in…

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