South: RICS Commercial Market Survey suggests some recovery

The latest RICS UK Commercial Market Survey suggests that the UK commercial property market is showing some signs of a return to a more positive mood, with the exceptions of London and Scotland.  

Occupier demand in most regions edged up in Q3 with 12% more respondents reporting a rise in demand at an all-sector level (compared with 1% in Q2). This change is mostly driven by the industrial sector. The demand for office space remains flat.

As market sentiment gradually normalises following the EU vote, all sector rent expectations across the South East recovered to a net balance of +27% in Q3 as opposed to 2% in Q2. Most of the improvement is driven by the industrial sector, with 31% more respondents expecting an increase. 

Investment enquiries have also seen an increase in Q3 after a steep fall in Q2. Across all sectors in the South East, 15% more respondents saw a rise in investment demand. Interestingly, despite the somewhat cautious tone still prevalent in the capital, growth in overseas investment enquiries in Central London, as reflected in the RICS net-balance indicator, outpaced all other areas during the third quarter, as overseas purchasers look to capitalise on the opportunity to buy prime assets given the significant discount provided by the weak pound.

As sentiment turned positive in comparison to Q2, capital value expectations also recovered noticeably.  For the next 12 months, a net balance of 50% more respondents expect capital values to increase across the south as a whole, with prime industrial and office markets expected to see the strongest gains.  

In an additional question designed to capture the impact on business of the EU referendum, some 86% of respondents nationally suggested that they have not seen any evidence at this point of companies looking to relocate some part of their activity away from the UK.  

Over 30% of respondents in Poland, Germany and Ireland, however, reported that they had already received enquiries from companies looking to relocate part of their business away from Britain, and a smaller, but not insignificant, share of contributors in Spain, the Netherlands and France also reported having seen such enquiries since the vote in June. Going forward, around three quarters of respondents across these nations expect there to be an increase in firms moving away from Britain and into Europe.

Simon Rubinsohn, RICS chief economist, commented: "The negative mood in the Q2 survey reflected the fact that it was conducted in the immediate aftermath of the referendum. The latest results suggest that the commercial market has subsequently settled down which is broadly consistent with much of the other macro news flow that has emerged over the past few months. In particular the rebound in our occupier-demand indicator suggests that for at least the time being, the UK economy is proving relatively resilient.”