Demand for UK commercial property surges, latest analysis shows

Demand for commercial property in the UK is growing close to its fastest pace since 1998 and, along with a surge in investment, reflects the widening economic recovery, according to the latest survey.

In the first quarter of 2015 the UK saw its 10th consecutive quarterly acceleration of demand for commercial properties, with 46% more respondents seeing greater interest, the commercial market report from the Royal Institution of Chartered Surveyors (RICS) shows.

Occupier activity is now at its highest since 1998, highlighting a more broadly balanced economic expansion, says RICS and overseas buyer enquiries are 34% more compared to 17% in the fourth quarter of 2014.

In the investment market, enquiries also increased significantly, with 49% more surveyors seeing more prospective investors, continuing the trend of rising demand which began towards the end of 2012.

The survey also reveals that availability is falling with 38% more surveyors seeing fewer commercial properties on the market and RICS says that the impact of these tighter market conditions on rental expectations has resulted in them edging upwards to the highest headline level reading since 1998. This is particularly apparent across the industrial and office sectors, while retail rental expectations continue to lag behind.

Looking ahead respondents expect, the office sector to perform most strongly with London leading the way despite increasing concerns over the valuation of prime property in the capital. Significantly, there is also increasing confidence that the more upbeat mood will impact on secondary space with rents and capital projections positive in all locations.

According to Simon Rubinsohn, RICS chief economist, the strength of the latest commercial property survey suggests that the underlying momentum of the economy will continue to accelerate through the course of this year.

‘What is particularly encouraging is that a better tone to the results is visible in all parts of the country and increasingly in secondary as well as prime space. Given that these indicators have historically provided a strong steer as to the performance of the economy two to three quarters out, it is hard not to be encouraged by the conclusions of this report,’ he explained.

Mark Bladon at Investec Structured Property Finance, said that the lack of supply is also having an impact on investment strategies with more investors looking at alternative opportunities in the search for more attractive yields.

‘Student accommodation has long been viewed as an alternative asset class but Investec believes it could be now be viewed as mainstream. We are also seeing consolidation in other alternative property sectors such as serviced apartments and retirement living, where yields are higher,’ he pointed out.

‘For momentum to continue, or for the alternative sectors to reach their full potential, the financing market will need to remain nimble and innovative in the face of these shifting trends,’ he added.