Conditions in the commercial property market in Wales deteriorated further at the end of last year, according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor as the industry faces a challenging environment.
Demand from both occupiers and investors was lower in the quarter across all sectors of the market in Wales.
A net balance of -29% of respondents in Wales said that occupier demand fell in Q4 2022, compared to -17% who said so in Q3. The fall in demand was most marked in the office and retail sectors (net balances of -41% and -42% respectively) but occupier demand was also reported to have fallen for industrial space for the first time since Q2 2020.
In relation to demand from investors, the net balance fell to -48% in Q4 from -4% in Q3. This was the lowest since Q2 2020. Steep falls in demand from investors was evident across the office (-59%), retail (-50%) and industrial (-35%) sectors.
As a result, expectations for rents and capital values deteriorated. A net balance of -49% of respondents in Wales indicated that they expect net capital values to fall across all sectors over the first quarter of 2023, compared to -15% in Q3.
Meanwhile, a net balance of -26% of respondents expects a fall in rents over the next three months, compared to -24% in Q3. The office sector saw the biggest change between Q3 and Q4 regarding rent expectations with -28% expecting a decline in Q3, falling to -45% in Q4.
Michael Bruce MRICS of DLP Surveyors in Cardiff said:
“New enquiries over the last quarter were not at the level expected. Many occupiers appear to be taking a far more cautious approach and are delaying any possible expansion plans until at least Q1/Q2 2023 once the worst excesses of winter are hopefully behind us. However, with rising fuel bills, increased supply costs, inflationary pressures, staffing issues, and increases in Rateable Values, Q2 2023 may still be seen as optimistic to see any real improvements in the economy.”
Tarrant Parsons, Senior Economist at RICS said:
“The investment side of the UK commercial real estate market has been significantly affected by tighter monetary policy of late, with higher borrowing costs weighing on investor demand and prompting an adjustment in valuation levels. Indeed, linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term. Going forward, the broader economic landscape will be crucial in determining how trends across the occupier market unfold from here.”
