(Credit: George Iordanov-Nalbantov)

A net balance of 11% of surveyors in Scotland noted a rise in overall demand for commercial property, the highest this balance has been since Q2 2022, and the second highest balance across all UK regions after Central London. Occupier demand for both office and industrial space saw a rise (net balances of 17% and 33% respectively) and both were stronger than in the previous quarter. Occupier demand for retail space remained in negative territory with a net balance of -17% of surveyors reporting a fall. However, this was an improvement on recent quarters.

Overall investor demand remained in negative territory for the seventh consecutive quarter, with a net balance of -16% of surveyors in Scotland reporting a decline. A net balance of -30% of respondents noted a fall in investor demand for office space, and a net balance of -35% in demand for retail space. The industrial sector continues to outperform the other subsectors with a net balance of 17% of Scottish respondents indicating demand had increased.

On rental expectations, surveyors in Scotland are more optimistic than they were on the outlook with a net balance of 21% anticipating a rise over the next quarter. Respondents noted that they expect a rise in rents for office and industrial space (net balances of 36% and 48% respectively). Regarding retail space, a net balance of -21% of respondents expect rents to fall. However, this marked an improvement on the previous quarter.

This trend of improving rents is expected continue over the year, with a net balance of 19% of surveyors in Scotland expecting rents to rise over the 12-months ahead.

Overall capital values are expected to rise over the next three months for the first time since early 2022, however just marginally so with a net balance of 3% of surveyors expecting an increase. The industrial sector is expected to continue to outperform other subsectors, with a net balance of 44% of surveyors expecting a rise in industrial sector capital values over the next quarter. Capital values for office space are expected to fall flat, and a net balance of -36% of respondents in Scotland expects a fall in retail values.

On the 12-month horizon, overall capital values are expected to rise with a net balance of 21% anticipating an increase over the next year, the second consecutive quarter this balance has been in positive territory.

Commenting on the UK picture, RICS senior economist, Tarrant Parsons, said: “Although sentiment remains relatively cautious regarding the near-term outlook across the UK commercial property market, the latest survey results do show some signs of recovery coming through. For one, occupier demand growth now appears to be gaining traction slightly, supported by the broader economy seemingly returning to growth following a brief recession late last year.

“Moreover, the prospect of interest rate cuts later this year have already led to an easing in credit conditions across the sector, marking the first such improvement in our feedback since 2021. This should begin to support investment market activity as the year wears on, which, in turn, will likely see a more stable picture emerge for headline capital values.”