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Brexit Adversely Impacting Investment into Wales Commercial Property

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Wales’s commercial property market has seen a significant drop in investor demand following the UK’s EU Referendum vote, according to the Q2 2016 RICS Commercial Property Market Survey.

Both the investment and occupier sides of the market have been affected by the change in sentiment, but it is the investment side where the impact is being most keenly felt.

During Q2 2016, investment enquiries fell sharply, according to Welsh surveyors, with the net balance falling to -28% in Q2 from +44% in Q1. The fall in foreign investor appetite was even more marked, with the net balance falling from +59% in Q1 to -28% Q2.

With investment demand falling, capital values are expected to be impacted as well, with the balance for three-month capital value expectations falling from +23% to +1%.

Political and economic uncertainty is also impacting confidence on the occupier side of the market in Wales, though not to the same extent. The net balance eased but is still positive (+10% in Q2 compared to +24% in Q1). All three sectors – office, industrial, and retail – saw a slowdown in occupier demand, according to the survey, with office demand proving most resilient (a net balance of +18% compared to +27% in Q1).

A more cautious demand backdrop is producing weaker rental projections as well. A net balance of +1% of Welsh surveyors expect rents to rise over the three months ahead compared to a net balance of +23% last quarter. All three sectors saw a slowdown in three-month rent expectations, while rental expectations across retail space dropped into negative territory (-20%).

However, supply remains tight, with availability of space continuing to fall (a net balance of -6%).

Chris Sutton, RICS Commercial Property Spokesperson in Wales, said:

“Political changes and economic uncertainty in the aftermath of the referendum result have dampened sentiment in the commercial property market in Wales, as it has across the UK. Whether or not the deterioration in the data is a kneejerk reaction that will unwind as the result is digested, or the start of a more prolonged downturn, remains to be seen. In the meantime, the impact on rents of reduced occupier demand could well be limited by the tight supply.”

RICS Head of UK Policy, Jeremy Blackburn said:

“Osborne, Hammond and Carney have moved to reassure markets post Brexit. Our commercial market survey shows clearly the impact that uncertainty is having on investment and occupier decisions. In laying out what we will negotiate for, there is a need for clarity for the ability of financial services to do business in the UK which will affect demand for office space, especially in the City of London. Similarly access to the single market or potential tariff barriers will be key in the longer term for some industrial occupiers and exporters. And immigration plans could well affect the future supply of new commercial space onto the market through construction starts.

Ministers need to lay out a clear timeline and set of ambitions for negotiating Brexit and our future trade relationships. First Ministers in the devolved nations must play their part in providing reassurance for property markets.”

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