Overall sentiment in the commercial property sector in Wales weakened in Q1 2019, with data for the office and industrial sectors softening and retail continuing to struggle, according to the Q1 2019 RICS survey.
Overall demand from occupiers for commercial property in Wales saw a marginal decline over the quarter. However, that was driven by the retail sector, where 31% more respondents reported a fall rather than rise in demand for retail units. Occupier demand for office space edged upwards but at a slower rate than in Q4 2018. Meanwhile, the industrial sector including warehouses, continued to see a steadier rise in tenant demand.
As demand for industrial space rose, the number of vacant industrial units continued to decrease, albeit at a less marked rate. Availability rose sharply in retail however. Indeed, the number of vacant retail units has been increasing over the past five quarters. Respondents also cited a slight rise in office availability during Q1.
This has consequently seen inducement and incentive packages from retail as well as office landlords pick up. 32% more respondents saw a rise rather than fall in retail inducements.
With regard to the outlook for the occupier market, the net balance for three-month rental expectations fell into negative territory for the first time since 2013. However, this was again largely driven by the retail sector with a net balance of -48%. Expectations for office rents are flat, whilst respondents, on balance, expect industrial rents to rise in the quarter ahead.
With regard to the investment market, respondents point to a clear softening in demand. Overall investment enquiries were reported to have fallen, with a sharp fall reported regarding enquiries about retail opportunities. Enquires from potential investors about office property were reported to be broadly flat, whilst the indicator for industrial property softened significantly and was at its lowest level in nearly three years.
Chris Sutton, RICS Commercial Property Spokesperson in Wales and Director at Sutton Consulting, said:
“The downturn in high street retail continues to be felt, particularly in secondary centres, and further retail casualties are expected this year. Wider uncertainty was also felt in the market during the first few months of the year, impacting on investment enquiries and short-term expectations. The longer-term outlook for the commercial property market in Wales is however more positive.”
Richard Ryan of Fletcher Morgan in Cardiff said:
“There has been a noticeable decline in the number of new enquiries in the first quarter of 2019 as well as a pause by businesses committing to new investment. Business also awaits the decision on the new M4 relief road by Welsh Government which will stimulate further growth in the region in addition to creating significant jobs in the construction industry.”
Andy Sturrock of Calan Retail in Cardiff said:
“This is the worst retail market in my experience, and I have been in retail since 1998”.
The main findings of the survey were (all figures are net balances of respondents):
- The net balance for occupier demand (all sectors) was -4%, indicating that overall occupier demand fell back marginally. Demand for industrial space (+11%) and office space (+8%) increased, whilst occupier demand for retail space was reported to have fallen again (according to a net balance of -31% of respondents).
- The balance of respondents (12%) indicated that availability of commercial property space was up. There was a big divergence at a sector level though, with the net balance of respondents pointing to availability of industrial space (-15%) falling and the availability of retail space rising (+46%).
- The net balance for 3month rent expectations was -9%, meaning that 9% more surveyors expect rents to fall than rise. Sentiment in the industrial sector (+22%) was positive whilst expectations for retail rents remained in negative territory (a net balance of -48% of respondents). Expectations for office rents were flat.
- Investment enquires were down according to the net balance (-17%) of respondents. Again, industrial (+8%) fared much better than the retail sector (-63%) according to the balance of respondents.
- The net balance for 3month capital value expectations was -10%, with capital value expectations in the industrial sector strongest (+27%). The indicator for retail capital values remained very weak (-58%).