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Expectations for Industrial Property Improve But Retail Continues to Deteriorate

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Expectations for the commercial property sector in Wales during the year ahead have improved following Decembers general election result, according to the Q4 2019 RICS Commercial Market Survey.

Surveyors expect rents and capital values in Wales to edge upwards overall in the 12 months ahead. However, there is a big divergence between the office and industrial sectors on the one hand and retail on the other.

With regard to rents, a net balance of +37% of Welsh respondents expects office rents to increase in the next 12 months and a net balance of +50% expects industrial rents to rise in the same timeframe. In contrast, the net balance for retail is -29%, as the sector’s challenges lead the balance of surveyors to expect rents to edge lower.

It is a similar story with regard to capital values. A net balance of +42% of Welsh respondents says that capital values in the industrial sector will rise in the year ahead and a net balance of +36% says that office capital values will rise in the same timeframe. Again, in contrast, the net balance for 12-month retail capital value expectations is -71%.

Retail aside though, the latest survey points to a modestly stronger outlook for the commercial property sector in Wales, after a challenging end to 2019.

After a fall in demand by occupiers and investors in Wales during Q4, anecdotal evidence from Welsh surveyors suggests the greater political clarity will spur on some pent-up activity which had been placed on hold due to Brexit uncertainty.

Chris Sutton, RICS Commercial Property Spokesperson in Wales and Director at Sutton Consulting, said:

“The Q4 drop in enquiry levels for offices and industrial sectors reflects the lack of business confidence at that time due to the general election. The decisive election result confirmed the departure from the EU, however the future trading relationship with the EU is not yet determined. This will continue to impact upon investment decisions by exporters, most notably manufacturing. The structural change on the high street continues with the repurposing of retail floorspace for alternative uses now actively considered by property owners and planners alike.”

Commenting on the market during Q4 2019, Nick Founds of RJ Chartered Surveyors in Swansea said: “The start of 2019 was strong, however, in the final three months of the year we have seen a definite reduction in enquiries and requirements. Stock levels have also declined since the summer with a wait and see approach taken by many.”

Tarrant Parsons, RICS Economist, commented:

“Expectations appear to have strengthened in the office and industrial sectors following the decisive outcome of the general election, with markets in prime locations in particular seeing projections for capital value and rental growth revised higher. That said, this improved sentiment has not found its way into the retail sector, where the outlook remains just as downbeat as before. Given the continued rise in retail vacancies and sharply falling demand, any change in fortunes across the sector still seems to be some way off. In the meantime, further downward adjustments in rents and capital values are expected both in the year to come and further ahead.”