Demand for commercial property edges upwards

commercial property

Investor and occupier demand edged up during the third quarter of the year in Yorkshire and Humber’s commercial property market, but demand for industrial space is still the most sought after commercial property in the region, according to the Q3 2017 RICS UK Commercial Property Market Survey.

In Q3, investment demand for commercial property continued to pick up, and proved the strongest in the industrial sector, with 55% of respondents seeing an increase in enquiries (up from 40% in Q2), whilst 41% of respondents saw a rise in investment demand for offices and 9% saw a rise in enquiries to invest in retail space. Although the weakest reading for investment demand was the retail sector during Q3, this was still an improvement on Q2, when no commercial surveyors in the region reported an increase in demand for retail property.

As domestic interest increases, interest from overseas buyers also rose across all areas of Yorkshire and Humber’s commercial property market during Q3, and near term capital value expectations point to growth for industrial and office commercial property assets, but little change for values across the retail sector.

Occupier demand in the third quarter of the year also increased in the industrial and office sectors, with 54% of respondents seeing a rise in enquiries to occupy industrial property (up from 39% in Q2) and 44% reporting an increase in demand to let office space (up from 33% in Q2). Meanwhile, occuiper demand continued to fall for the fourth consecutive quarter in the retail sector.

On the back of the lack of demand for retail property in Yorkshire and Humber, landlord incentive packages on offer to tenants rose during Q3 with 26% more respondents seeing an increase in incentives offered for retail property (up from 12% in Q2).

Given the more positive occupier demand picture for industrial and office property, it is unsurprising that 61% of commercial surveyors in Yorkshire expect rents for industrial space to rise over the coming three months, with 46% also anticipating rents for offices will also increase. Only 7% of respondents expect rents for retail property to rise over the next three months.

Looking further ahead 53% of respondents expect to see rents for all commercial property types rise over the coming 12 months, largely due to a lack of available good quality commercial space in the region. Only 8% of respondents noted a rise in new commercial property development starts in Yorkshire and Humber in Q3.

In terms of valuations, across Yorkshire and Humber, a strong majority of contributors (62%) sense the commercial property market is fairly valued at present. Central London continues to exhibit the highest proportion of respondents viewing the market to be overpriced to some extent (67%). Meanwhile, 37% of respondents from the South East are now of the opinion that values are stretched relative to fundamentals, a steady increase on 16% who were taking this view three quarters ago.

Graeme Haigh of Bramleys LLP in Huddersfield said: “The preference shown by occupiers to buy, rather than rent, continues. However, while stock levels remain low, the number of new instructions is edging upward, which may help to take some of the heat out of the sales market by addressing the supply/ demand imbalance.”