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Demand for Commercial Property in Wales Increasing in Face of EU Uncertainty


A Cardiff-led recovery in the commercial property market in Wales is continuing, despite any uncertainty being created by the forthcoming EU Referendum, new figures from RICS (Royal Institution of Chartered Surveyors) suggest.

Growth in demand from investors for office, retail and industrial property (a net balance of +44%) remains amongst the strongest in the UK, according to the RICS Commercial Property Market Survey, and is bucking the overall UK picture of falling investor activity due to caution in the lead up to the 23rd June vote.

Occupier demand in Wales, whilst softening after a very strong end to 2015, remains relatively robust (a net balance of +24%).

As demand increases, supply has continued to decrease, with the survey recording the eighth consecutive quarterly drop in availability of space in Wales (a net balance of -20%).

As a result of the imbalance between supply and demand, Welsh surveyors expect commercial property rents to increase in the next three month period (a net balance of +23%). Expectations for office rents are particularly strong (a net balance of +36%).

RICS Commercial Property Spokesman in Wales, Chris Sutton, said: “Investor and occupier demand remains relatively robust, and rental and capital growth is evident. However, I think it is fair to say that this has been largely focused on the Cardiff and M4 corridor. The challenge is to harness the growth that is being seen in Cardiff. Long-term investment funding in infrastructure across Wales is essential to this.”

The latest commercial property figures are released along with the RICS EU Referendum Paper, which examines the pros and cons of the UK remaining and exiting Europe.

The paper includes data that shows there has been a steady easing in international demand for UK office, industrial and retail property since the referendum was confirmed in Q2 2015.

Jeremy Blackburn, Head of Policy & Parliamentary Affairs at RICS, says:

“The EU Referendum will be closely watched by many in Wales, not least in the industrial sector, where there is of course the ongoing steel crisis impacting upon Port Talbot. The inclusion of the steel works in the Port Talbot Enterprise Zone is of course welcome in this respect. But a Brexit could see an increase in tariffs for exporters and impact on costs for the industrial sector in the medium to longer term, and post-Brexit trade negotiations would be absolutely key. Some in the manufacturing sector have argued that a Brexit would not have a negative impact on the UK. In the short-term however any uncertainty is unlikely to be helpful.”

Commenting on the UK picture, RICS Chief Economist, Simon Rubinsohn said:

“There is no doubt that since the EU referendum became a certainty following the General Election last May, we have seen a decline in interest from overseas investors in UK commercial property. At least in the short-term, we know that international retailers and service providers are finding the UK market less attractive.

“But we need not view this as a negative, as a result of the market dampening, business rents are also rising at much slower rates, which suggests that we might soon be seeing more favourable conditions for entry and business growth.

“Moreover, it is interesting to see that despite the climate of uncertainty across all sectors surrounding the impact of Brexit, the long-term view is that we will continue to see the value of land and property assets increase, albeit at a marginally slower rate.”

While the National Farmers Union (NFU) has this month come out in favour of remaining in the EU, largely due to concerns around the loss of Common Agricultural Payments (CAP), the RICS EU Paper has highlighted that a Brexit may benefit the forestry sector.

 RICS Rural Chair, Gerard Smith said:

“In the event of Brexit, farmers will most likely lose access to the EU single market and CAP.  The question that Government has yet to answer is how much of the current support system they would replace in such an event.

“In terms of CAP transition, the EU Commissioner for Agriculture has suggested that the EU may well have a contract to support UK farmers until 2020. However, this would still mean that we would have to restructure UK land and farming businesses in the short to medium term.

“While the strong gains seen in land prices over the last decade have come to an end, and some are now forecasting falls ahead, 70 per cent of our rural members feel that land would still remain a strong investment opportunity overall.

“While there is no doubt that the majority of those working in rural sectors will be concerned around the possible withdrawal of CAP, quite uniquely, there is an anomaly in that forestry has benefitted from the uncertainty around the EU and the consequential weakening of the pound.

“The second half of 2015 saw a strong GBP performance against the Euro, and this impacted on the competitiveness of UK domestic supplies due the better prices of imported timber. Continued uncertainty from a Brexit could weaken the pound, so we could see resurgence in the domestic timber market. This could lead to UK timber being an enticing investment option for those looking into the UK – maintaining jobs, output and value.”