Activity in the Welsh commercial property market continued to weaken in the first three months of this year as investor and occupier demand fell due to continuing inflationary pressures. According to the latest RICS commercial property monitor for Q1 2023, occupier demand remained in negative territory for the third consecutive quarter at a net balance of -23%, with Wales the weakest out of all the UK regions.
Occupier demand for retail and office property also fell with the monitor recording a net balance of -36% and -33% respectively. While the report found industrial demand had flatlined. In the investment market, the net balance was -14% in Q1 2023, an improvement from -48% in Q2 2022. Both office and retail continued to see declines in investment enquiries (net balances of -27% and -33% respectively).
However, the industrial sector saw renewed momentum with increases in investment enquiries at a net balance of 18%, up from -35% on the previous quarter. Capital value expectations in the industrial sector were also positive with a modest rise at a net balance of 10%. Though the general outlook on capital values in Wales is predicted to fall over the next quarter.
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While overall rental expectations are predicted to fall over the next three months as are rents for both retail and office property (at -30% and -67% respectively). Similar to net capital values, industrial rent expectations are expected to rise also at a net balance of 10%.
Richard Baddeley of Richard Baddeley & Company in Conwy said: “The market across all sectors is fairly languid but the budget proposals for Anglesey with additional funding for Welsh Government is welcomed.”
Richard Ryan from Fletcher Morgan in Cardiff said: “With occupier demand in both the retail warehouse and industrial sectors proving resilient, this, combined with limited available space and few new developments under construction, should lead to rental growth, provided other occupational costs remain affordable.
“Similarly, given the recent inflation in construction costs, together with the softening of investment yields, it is unlikely new developments will be viable unless occupiers are prepared to pay higher rents.”
Senior economist for RICS Tarrant Parsons said: “Although the picture across the UK commercial property market remains generally subdued in the face of higher interest rates and a soft economic outlook, the latest survey feedback tentatively suggests that the most difficult period for the market may now have passed.
“Indeed, capital value expectations for industrial assets returned to modestly positive territory having fallen sharply at the end of last year. This improvement has been supported by still solid occupier conditions across the sector, with demand for industrial space continuing to outstrip supply.
“Likewise, many of the more alternative sectors such as aged care facilities, life sciences, data centres and student housing display a resilient outlook for the year ahead. By way of contrast, secondary office and retail properties continue to struggle, evidenced by rental and capital value projections remaining deeply negative across both segments for the coming twelve months”.
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