Investors waited for Budget clarity
The UK commercial property market has remained sluggish in the third quarter, according to the latest Commercial Property Monitor from the Royal Institution of Chartered Surveyors (RICS).
Respondents reported a cautious atmosphere, with many adopting a “wait and see” approach ahead of the government’s budget announcement.
Occupier demand rose slightly in the third quarter, with a net balance of +5%, marking a continuation of the modest gains seen earlier this year. Industrial properties led the market, posting a net balance of +14% in demand, although this figure lags behind the decade-long average of +28%. Office and retail demand remains mostly flat, but retail sentiment has reached its least negative point since 2022.
The RICS report also revealed an increase in vacancy rates across office and retail spaces, leading landlords to offer more incentive packages to attract tenants. Rental growth projections for the next 12 months are mixed, but prime spaces in all sectors, particularly sustainable office properties, are expected to see rental increases.
Investment activity across the commercial sectors remains stagnant. The industrial sector showed the most resilience, with a modest positive outlook of +14%, while investment sentiment for retail and office spaces remains slightly negative.
Meanwhile, a net balance of +29% of respondents reported an increase in distressed sales over the past year, largely due to rising interest rates making mortgage payments unmanageable for some landlords. Looking forward, a net balance of +42% of respondents expect distressed sales to rise, with retail (64%), office (48%), and leisure (38%) identified as the most vulnerable sectors.
“The UK commercial property market continues to exhibit a relatively underwhelming performance, as some respondents cite a ‘wait and see’ approach ahead of the first budget statement from the new government (released yesterday),” said Tarrant Parsons (pictured), senior economist at RICS.
“Despite the market being on tenterhooks for any new announcements, there are reasons to be more optimistic. An improving lending environment is likely to provide support to commercial real estate investment activity going forward, and headline capital value and rental growth expectations are also modestly positive for the coming 12 months, in keeping with the idea that the market has shifted into the early stages of an upturn.”
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