Commercial property demand up in UK as supply falls

Demand from business for commercial property in the UK rose for the eleventh consecutive quarter, while available space fell for the ninth successive period, the latest sector market survey report shows.

The Royal Institution of Chartered Surveyors (RICS) says that as a result, rents are expected to rise at the fastest pace since its survey began in 1998 with 46% more respondents forecasting higher, rather than lower, rent rates going forward.

Offices remain the segment of the market where rental expectations remain most buoyant, while retail continues to lag although even in this area, momentum is picking up, while prices are expected to keep rising over the next 12 months.

The picture is not dissimilar in the investment market, where purchase enquiries rose again; 53% more surveyors reported an increase in prospective investors over the quarter.

Meanwhile, availability continues to decline, exerting further upward pressure on capital values. There were also reports of greater overseas buyer interest, with 36% more respondents seeing more enquiries from overseas investors.

Across the whole of the UK, but excluding London, 95% of respondents believe that current commercial market valuations are either at or below fair value, this is roughly unchanged since the first quarter of 2015. However, in London 50% of contributors now feel that commercial property valuations are 'expensive', an increase from 45% in the first quarter.

RICS says it was interesting that given the upcoming referendum on the UK’s position in the European Union, when asked if Britain leaving the EU would have significant negative implications for the commercial property market, 44% of respondents felt it would, while 32% believed it would not. Reflecting the high degree of uncertainty, 24% reported they did not know at this point.

‘The results of the latest survey suggest the price of commercial real estate will continue to move higher over the next 12 months and quite possibly by another 10%,’ said Simon Rubinsohn, RICS chief economist .

‘Fortunately, the strength of the occupier market is providing some underlying support for the market. Indeed, the feedback we are getting from around the country tells us that the economic expansion is continuing to broaden out with both tenant demand, and just as significantly, investor interest, rising in all areas,’ he added.