NEW research has revealed that overall occupier demand for commercial property in Scotland ‘fell flat’ through the last quarter of 2023.
The findings were revealed in the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor.
However, the study also found that rental and capital value expectations in both the short and longer term improved.
Whilst occupier demand at an all-sector level was flat, at a sub-sector level, both office and industrial space saw increased demand, with net balances of +8% and +18% respectively. Demand for retail space fell, with a net balance of -21% of respondents reported.
Availability increased, with a net balance of +12% of Scottish surveyors reporting a rise. Both office and retail space saw increased availability at +14% and +33% respectively. With occupier demand for industrial space the highest out of the three sub-sectors, RICS added that it is unsurprising that availability for this type of space is in decline with a net balance of -12% of respondents noting a fall.
In terms of investor demand, a net balance of -20% of respondents saw a fall in Q4. However, this is an improvement from -34% in Q3. A net balance of 5% of respondents noted a rise in enquiries for industrial space, and net balances of -26% and -38% saw falls in investor enquiries for office and retail space respectively.
With regard to three-month expectations, there were improvements regarding both rental and capital value expectations.
On the 12-month outlook, capital value expectations improved, with a net balance of 7% of respondents in Scotland anticipating a rise – the first time this figure has been in positive territory since Q2 2022. Surveyors expect increased capital values in both office and industrial space. Regarding 12-month rental expectations, the all-sector balance is positive for the first time since June 2022, with surveyors expecting rents in the office and industrial sectors to rise.
Graham Mitchell of George Davie in Glasgow said, “There are signs of recovery in the marketplace and there are increases in enquiries and demand. There are sectors that are definitely seeing improvements in enquiries and business activity.”
Paul Kettrick of Falkirk Council added, “Industrial demand is buoyant locally due to infrastructure investment programmes.”
John White of Hunting Real Estate in Glasgow commented, “Offices are probably nearing the bottom of the cycle, as is retail. However, the lack of supply of development land for industrials will continue to drive rents forward.”
Commenting on the UK picture, RICS senior economist Tarrant Parsons said, “Current conditions remain challenging across the UK commercial property market, with investor demand still being weighed down by the tighter lending climate and uncertain outlook for values. At the same time, relatively weak momentum with respect to economic activity more generally is taking its toll on tenant demand, with the ongoing structural challenges facing parts of the office and retail sectors also hampering market sentiment.
“That said, the significant turnaround in expectations for monetary policy of late provide a reason for cautious optimism going forward, and the latest results do point to a more stable backdrop for credit conditions coming through this quarter.”
