Occupier and investor demand for commercial property in Wales fell, according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor. The survey points to a weakening in the market as the prospect of further interest rate rises weigh heavily on the outlook over the year ahead.

On the occupier side, overall tenant demand in Wales fell to a net balance of -17% of respondents, the lowest figure since Q4 2020. There has been a downward trend in occupier demand for both office and retail space (net balances of -22% and -37% respectively). And tenant demand for industrial property was flat for Q3, down from +31% in Q2.

Overall rental expectations in Wales for the three months ahead deteriorated markedly, at -24% down from +9% previously. Office rental expectations turned sharply negative, whilst retail rent expectations deteriorated further and industrial rental expectations were only slightly positive at +6%. This was down from +82% just two quarters ago.

In the investment market, a net balance of -4% of respondents in Wales cited a decline in enquiries during Q3. None of the three sectors (office, retail and industrial) recorded growth in investment enquiries, with industrial turning slightly negative for the first time since summer 2020.

The outlook shifted markedly during Q3 for capital values. Projections for office values in Wales turned more negative, with the net balance falling to -19% from -8% in the previous quarter. For retail, already negative projections were downgraded further, with a net balance of -31% of Welsh contributors anticipating retail values falling in the three months ahead. Capital value expectations in the industrial sector remained positive, but only just. The net balance of respondents fell to +6% in Q3 from +43% in Q2.

Survey respondent Michael Bruce MRICS of DLP Surveyors in Cardiff said:

“The general feeling is that the traditional summer slowdown in the commercial market probably started earlier than usual and extended longer into the autumn. Many occupiers still appear reluctant to commit to taking larger properties, preferring instead to take stock of current economic conditions and pausing any expansion plans over the next six months at least.”

Julian Dyer of Julian Dyer & Co in Abergavenny said that all sectors of the property market appear to be hardening.

Tarrant Parsons, RICS Economist, said:

“Deteriorating conditions across the UK economy are having an increasingly noticeable influence on the commercial property market, with higher interest rates, and the prospect of more to come, now clearly weighing on investor demand.

“The weaker survey feedback is particularly evident in the retail sector, as the cost-of-living crisis and falling consumer confidence takes its toll on household spending. Likewise, the office sector has also seen a renewed decline in demand, with ongoing structural changes to working patterns brought about by the pandemic further exacerbating the broader cyclical downturn in the economy.”