The Scottish commercial property market has seen a significant drop in confidence and investor demand following the decision of the United Kingdom to leave the European Union, according to a new survey.

The Commercial Property Market Survey carried out by the Royal Institute of Chartered Surveyors (RICS) found that both the investment and occupier sides of the market have been affected by the change in sentiment and both rent and capital value expectations are now in negative territory.

Although opinions are mixed, the largest share of respondents across the UK (36 per cent) feels the market is now in the early stages of a downturn. All parts of the UK saw an increase in the proportion of contributors sensing the market is turning down. London exhibits the highest proportion, with 54 per cent of respondents taking this view.

During Q2 2016, investment enquiries fell sharply across Scotland with a net balance of 40 per cent of respondents reporting a decline in enquiries. All sectors covered by the survey suffered a drop in investor demand, and foreign investor appetite in Scottish commercial property also declined at significant rate with 24 per cent more respondents to the survey seeing a drop in interest.

With investment demand falling right across the UK, capital values are expected to decline, albeit moderately over the year ahead in almost all areas of the market. Values in the secondary retail and office segments are expected to see the most visible decline.

Political and economic uncertainty is also hitting confidence on the occupier side of the market. In Scotland, occupier demand dropped for the first time since Q3 2014. A cautious demand backdrop is producing significantly weaker rental projections across the board. This is especially the case over the shorter term with 31 per cent more respondents now expecting commercial rents in Scotland to decline over the coming quarter. This stands in stark contrast to Q1, when 17 per cent more respondents anticipated rents would increase in the near term.

The office and retail sectors experienced the steepest decline in rental projections with the reading for both now well in negative territory. Across the UK, rent expectations are most negative in London, pointing to a fall of around 3 per cent over the next 12 months at the headline level. Secondary retail rents are expected to suffer the largest decline in the capital.

Jeff Matsu, RICS senior economist, said: “Political and economic uncertainty in the aftermath of the referendum result has clearly dampened sentiment in the commercial property market, with the tone becoming visibly more cautious right across the UK. Although the impact is widespread, the drop in confidence has been most pronounced in Scotland and London.

“Nevertheless, following several years of strong capital value and rental gains, momentum had already appeared to be slowing. Whether or not the sharp deterioration in the RICS survey data is a kneejerk reaction that will unwind as the result is digested, or the start of a more prolonged downturn, remains to be seen.”

Jeremy Blackburn, RICS head of UK policy, said: “Our commercial market survey shows clearly the impact that uncertainty is having on investment and occupier decisions. In laying out what we will negotiate for, there is a need for clarity for the ability of financial services to do business in the UK which will affect demand for office space, especially in the City of London. Similarly access to the single market or potential tariff barriers will be key in the longer term for some industrial occupiers and exporters. And immigration plans could well affect the future supply of new commercial space onto the market through construction starts.

“Ministers need to lay out a clear timeline and set of ambitions for negotiating Brexit and our future trade relationships. First Ministers in the devolved nations must play their part in providing reassurance for property markets.”