South East: Commercial property still viewed as sound investment despite macro concerns, says RICS survey

UK commercial property is still seen as a safe haven for investors with rents and capital values set to continue rising despite macro concerns, according to the latest RICS UK Commercial Market Survey.

The RICS UK Commercial Market Survey, Q4 2015, reveals that the industrial sector has the greatest momentum in occupier demand. In the South East 35% more chartered surveyors are seeing a rise rather than fall in demand for industrial space compared to 18% more seeing a rise in demand for offices and 16% more seeing a rise in demand for retail.

As demand increases, supply has continued to decrease across the UK with the survey recording the 10th consecutive quarterly drop in availability of leasable space across the South East commercial property market.  

In the face of the supply-demand imbalance, all sector rents are set to continue to rise over both the medium and longer term.  Over the next 12 months, respondents are most confident of seeing rental increases in the prime industrial market across the south, with 92% more respondents foreseeing a rise as opposed to a fall. At the other end of the scale, secondary retail space exhibits the most modest reading on a sectoral comparison but still posted a relatively healthy balance of 46% expecting rents to grow.

Looking at the investment market, buyer enquiries have risen in each sector albeit less than previously. Again the industrial sector has seen the highest rise with 40% of respondents in the South East saying enquiries had risen rather than fallen.

Capital values are forecast to rise further in all sectors of the market in both the near and longer term again with the industrial sector most likely to outperform – over the next three months 61% more respondents in the South East expected capital value to rise rather than fall.

Regionally price expectations are positive across the UK and yet only 15% of respondents in the South East view commercial real estate to be overpriced (compared to 81% in London) while 25% thought real estate was ‘cheap’.  

RICS chief economist Simon Rubinsohn commented: “For the time being the real estate sector seems largely insulated from the turmoil affecting financial markets. Indeed, the prospect of a ‘low for longer’ interest rate environment provides further comfort for those parts of the property market where values are looking a little stretched and arguably more vulnerable to a material shift in monetary policy. One potential consequence of the current climate is that the trend in foreign investment could slow which is a pattern the latest RICS survey seems to be picking up. However, with the economy still set to post growth in excess of 2% in 2016 the backdrop for the occupier market appears reasonably well underpinned.”