Scottish commercial property market slows amid ‘more cautious’ outlook


THE cost-of-living crisis and Bank of England rate hikes have caused a slowdown in Scotland’s commercial property market, new research has revealed.

The Royal Institution of Chartered Surveyors (RICS) Commercial Property Survey has found the outlook has become ‘more cautious’.

Occupier demand for commercial property across all sectors in Scotland ‘eased’, with a net balance of +11% of respondents reporting an increase in Q2 2022, compared to +33% in the previous quarter.

Retail continues to be in negative territory with a net balance of -33%, while the net balances for office and industrial demand were lower than in the previous quarter, at +9% and +57% respectively, down from +32% and +74%.

RICS added that investor demand also eased according to respondents in Scotland. A net balance of +17% reported a rise in investment enquiries in Q2 compared to +29% in Q1. Respondents pointed to falls in investment enquiries in the retail sector, with the net balance deteriorating from -13% to -32%.

Looking ahead, respondents expect both rents and capital values to rise in the next three months and the next 12 months, but are less confident about short and longer-term outlook than they were in Q1.

George Ranachan of Christe & Co in Glasgow said, “I would assess the market as in the early stages of a downturn with Q4 2022 likely to see the deepest fall.”

Gavin Russell from J&E Shepherd in Dundee added, “The industrial market continues to outperform other sectors in terms of demand and rent and capital values. Demand for roadside and leisure developments in particular continues at pace. Secondary retail is performing fairly, despite economic pressures.”

Tarrant Parsons, RICS economist, commented, “As the UK economy grapples against significant impediments to growth, the gloomier macro outlook appears to be dampening sentiment across the commercial real estate market. In particular, with the Bank of England sanctioning several interest rate hikes over recent months in an attempt to ward off inflation, respondents report that credit conditions are now tightening within the sector.

“This, in turn, appears to be weighing on investment activity, which lost some momentum at the headline level during Q2. Given interest rates are set to rise further from here, it appears the market may be at a turning point, with an increasing share of survey participants throughout the UK now feeling conditions are consistent with the early stages of a downturn.”