OCCUPIER demand in Scotland’s commercial property market ‘fell flat’ in the second quarter of 2023, according to new findings.
The latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor did, however, reveal that surveyors appear to be more optimistic about the market in the months ahead.
A net balance of 2% of respondents in Scotland said occupier demand rose in Q2 2023, compared to 5% in Q1. There was a reported increase in demand in the industrial sector, with a net balance of 26% of respondents seeing a rise, but retail space remained in negative territory (-21%) and demand for office space was reported to be flat.
A net balance of -22% of surveyors reported an overall fall in investor enquiries, with all three sub-sectors experiencing a decline. A net balance of -17% of respondents saw a fall in office space, -13% in industrial space, and -38% in retail property.
In terms of outlook, capital values are expected to remain in negative territory. A net balance of -25% of respondents in Scotland indicated they expect net capital values to fall across all sectors over the second quarter of 2023, with all three sub-sectors anticipated to decline.
More encouragingly, a net balance of 16% of respondents expect a rise in rents over the next three months, indicating a more positive outlook for the occupier market. Both office rents and industrial rents are expected to rise with a net balance of 21% and 32% expecting an increase respectively. In retail, a net balance of -4% of respondents expect rents to decline – up from -51% the quarter previous.
Stuart Hall of Kingsmead Developments in Glasgow said, “There is huge uncertainty on many fronts at the moment from a global perspective – inflation, interest rates and cost of living crisis all contributing to volatility in occupational, development and investment decisions.”
Giles Edgar of 1910 Investments Limited in Edinburgh added, “Tightening credit conditions are stalling markets.”
Commenting on the UK picture, Tarrant Parsons, senior economist at RICS, said, “The stubbornness of UK inflation over recent months has once again shifted the outlook for monetary policy, with further interest rate hikes from the Bank of England now priced in across financial markets. This has, almost inevitably, impacted sentiment within the commercial property market, as higher borrowing costs weigh on investor demand and place renewed pressure on capital values.
“Meanwhile, occupier activity, although also losing some momentum in Q2, appears a little more resilient at present. As such, this is reflected in still positive rental growth expectations for the year ahead across the industrial sector, prime offices, and for several of the more alternative asset classes tracked in the survey.”
