Demand remains strong in all commercial property sectors in UK

Commercial property prices in the UK continue to rise as demand remains strong in all sectors according to the latest survey from the Royal Institution of Chartered Surveyors (RICS).

UK Commercial Property is still seen as a safe haven for investors with rents and capital values set to continue rising despite macro concerns, the survey says.

With businesses across the UK thriving and employment data still strong, the industrial sector has the greatest momentum in occupier demand.

Some 43% more chartered surveyors are seeing a rise in demand for industrial space in the fourth quarter of 2015, compared to 29% more seeing a rise rather than fall in demand for offices and 26% more seeing a rise in demand for retail.

As demand increases, supply has continued to decrease across the UK with the survey recording the eleventh consecutive quarterly drop in available space across the commercial property market.  

The survey report also says that development nationally has only increased marginally with anecdotal evidence suggesting that there is a lack of commercial construction activity in many locations.

It also explains that a deepening skills crisis is playing a key role in inhibiting development. One notable exception to the low level of new build across the UK is in the London office sector, where development has risen sharply over the last three quarters and 34% more surveyors saw a rise rather than fall in office development starts in the quarter.

In the face of continued demand and lack of supply, rent expectations for the next quarter are strongly positive across all sectors with 35% more chartered surveyors projecting a rise in rents across all sectors. 

Industrial space was again the strongest performer with 43% more surveyors envisaging a further rise rather than fall in rents.

Looking at the investment market, buyer enquiries have risen in each sector albeit less than previously and the upward trend in foreign buyers has noticeably flattened. Notwithstanding this, capital values are forecast to rise further in all sectors of the market in both the near and longer term with prime office and industrial sectors most likely to outperform.

Looking further forward, all sector rents are set to continue to rise both in the medium and longer term. Over the next 12 months, respondents are most confident of seeing rental increases in the prime industrial market with 87% more respondents foreseeing a rise as opposed to a fall.

At the other end of the scale, secondary retail space exhibits the most modest reading on a sectoral comparison, but still posted a relatively healthy balance of +51% expecting rents to grow.

Regionally price expectations are positive across the UK, with the strongest performers expected to be London and the East, however, 81% of respondents in the capital now view commercial real estate in central London to be overpriced, slightly up on the 77% who took this view in the third quarter survey.

The report also points out that there is a lack of incentives available. The value of incentive packages on offer from landlords to tenants fell across each sector in the final quarter of 2015 a trend in place for much of the past two years.