NEW research has revealed Scotland’s commercial property market is continuing to see increased activity as both investor and occupier demand rises.
The findings were made in the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor.
Surveyors are also more optimistic about the outlook this year for the sector.
Overall investor demand rose through the final quarter of 2024, with a net balance of 20% of respondents in Scotland reporting an increase – the highest since early 2022. Demand was reported to have risen across office, industrial and retail space.
In terms of occupier demand, a net balance of 10% of surveyors in Scotland reported a rise, up from 1% in Q3. Occupier demand across all subsectors saw a rise, with industrial space continuing to outperform retail and office.
Looking ahead, respondents in Scotland are more optimistic than previously, with a net balance of 13% anticipating a rise in rental values over the next quarter. Respondents expect a rise in rents for office and industrial space (net balances of 26% and 25% respectively). Regarding retail space, a net balance of -11% of respondents expect rents to fall. This is the least negative this balance has been in six quarters.
Overall capital values are expected to rise over the next three months too. A net balance of 22% of surveyors expect a rise in industrial sector capital values. Capital values for office space are also expected to increase as a net balance of 31% of surveyors in Scotland anticipate a rise. Surveyors expect that capital values for retail space will fall broadly flat through the first quarter of 2025.
John Bruce Patrick of Math Real Estate Partners Ltd in Glasgow said, “With regards to the Glasgow market, higher finance and construction costs coupled with softer investment yields will continue to constrain the supply of new commercial developments. This should provide a floor under existing commercial property values. There will be a continued flight to quality both in terms of location and physical building with an increasing gap in value between the ‘have and the have nots’.”
Guy Strachan of Smolka Strachan LLP in Edinburgh said, “There were signs of improvements before the recent Budget but occupiers, investors and lenders all now taking stock.”
Commenting on the UK picture, RICS head of market analytics, Tarrant Parsons, said, “The closing quarter of 2024 saw sentiment in the UK commercial property market soften a little, with bond market uncertainty impacting credit conditions and investment. This has not however soured long-term confidence in the market.
“Prime industrial and office assets continue to demonstrate resilience, and the gap between modern, energy-efficient commercial property and the rest expanded again. According to some of our respondents, rising rents are enabling developers to refit and improve their properties in what is a competitive prime market.
“Many are employing a ‘wait and see’ attitude towards the commercial property sector and the impact of the government’s policy package, reflected in a flatter outlook this past quarter. The latest announcements by the Chancellor should help support confidence in the real estate sector.”
