Confidence in the commercial market is flat
The UK’s high streets continue to face challenges as retail lags behind office and industrial property, according to the Royal Institution of Chartered Surveyors (RICS).
The latest RICS UK Commercial Property Monitor found that overall confidence in the UK’s commercial property market remained flat in the second quarter of 2024.
The performance gap between prime and secondary properties, as well as between London and other regions, continued to widen. Prime office rental expectations recorded a +45% net balance, while secondary office space saw a -32% net balance, indicating expected reductions in rental income for secondary units. This highlights the need to address sustainability and other factors in secondary office space.
London significantly outperforms other regions for prime office property, recording a +68% reading for prime office rental growth. This is higher than the +29%, +25%, and +29% recorded for the South, Midlands, and North, respectively.
The largest proportion of respondents (41%) believe the market is in an early recovery stage, while 34% think the market has reached its bottom.
Tenant demand across all sectors also remained flat (+4% net balance), with industrial property and offices outperforming retail. Respondents noted a slight decrease in tenant demand for retail.
“When it comes to commercial property, there remains a need to increase investment in retail and the high street,” said Sam Rees, RICS senior public affairs officer.
“The government have talked about several ways to improve retail conditions including introducing High Street Banking Hubs, the revamping of long-term empty retail units, devolution, and replacing Business Rates with a new system. These are all good proposals, and if combined with clarity on the use of MEES for commercial property, they could help the sector significantly.”
Tarrant Parsons (pictured), RICS senior economist, added that overall activity remains relatively subdued across the UK commercial property market, with conditions seen as generally flat in Q2.
“That said, respondents now feel the market is moving towards the early stages of an upturn following a challenging couple of years,” he said. “The near-term path for monetary policy will be key to the outlook for CRE investment going forward, although hopes of an immediate easing in lending rates may be optimistic given still sticky services inflation (even if the headline rate has returned to target).
“Away from the cyclical picture, a strong structural trend that continues is the outperformance of prime office markets compared their struggling secondary counterparts. In particular, prime offices across London are seen delivering solid capital value and rental income returns over the coming twelve months.”
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