Taylor Scott International News
Sentiment in the UK’s commercial property market has dampened significantly since the referendum vote to leave the European Union with investment demand falling sharply, most notably in London. The heightened sense of caution is visible across both investment and occupier sides of the market, with uncertainty pushing rental and capital value projections into negative territory, according to the latest commercial property market survey from the Royal Institution of Chartered Surveyors. It shows that and increasing share of respondents across the UK now feel the market is in an early downturn phase and the 12 month capital value and rental projections have now moved into negative territory. On a UK wide basis, occupier demand failed to rise for the first time since 2012. The headline net balance fell from +21% previously to a reading of zero in the second quarter of the year. Declines were reported in the office and retail areas of the market but demand proved somewhat more resilient across the industrial sector. The regional breakdown shows the occupier demand gauge moderated across all parts of the country, although the shift was most noticeable in London. Alongside this, availability remains constricted, with the supply of leasable space more or less unchanged in the office and retail sectors during the second quarter, while industrial availability continued to decline. Worries over a potential hit to business confidence, caused by political and economic uncertainty, appear to be reflected in respondents’ rental outlook. This is especially the case over the shorter term. Indeed, the headline three month rent expectations net balance dropped from +26% to -7% in the second quarter. The office and retail sectors experienced the steepest decline, with the reading for both now comfortably in negative territory. In the industrial sector, although the net balance softened notably, it remains positive given the very tight supply and demand conditions. When the results are disaggregated, the rental outlook is most negative in London. Over the next 12 months, rents are projected to fall by around 3% at the all-sector level. Within this, rents across the secondary retail sub market are expected to come under the most significant downward pressure. The survey report points out that the weakness in demand is perhaps even more visible on the investment side of the market. During the second quarter the investment enquiries series fell sharply, posting a net balance of -16%, down from +25% in the first quarter of the year. What’s more, all traditional sectors covered in the survey experienced a drop-off in investor interest. Foreign investor demand declined at an even greater rate, as the net balance fell to -27%. While respondents in virtually all parts of the UK noted a decline in overall investment enquiries, the trend was again most pronounced in London. In fact, at -41%, the investment enquiries gauge for the capital was the weakest since 2009. Back at the UK wide level and, despite a softening demand backdrop, the supply of… Taylor Scott International
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