RICS: Scottish commercial property market conditions expected to improve after lacklustre third quarter
Surveyors anticipate that commercial property market conditions in Scotland will improve, with rents and capital values expected to pick up after a lacklustre third quarter, according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor.
A net balance of 1% of surveyors in Scotland noted a rise in overall demand for commercial property in the most recent quarter, down from 4% in Q2 and 11% in Q1. Occupier demand for both office and industrial space saw a rise, with net balances of 6% and 20% respectively. Occupier demand for retail space remained in negative territory though, with a net balance of -24% of surveyors reporting a fall, the lowest this balance has been in a year.
Overall investor demand also fell flat through the third quarter of the year. Investor demand for office space was in positive territory for the first time since mid-2022, as a net balance of 7% of Scottish respondents report a rise. Surveyors in Scotland also report a rise in investor demand for industrial space for the fourth consecutive quarter (a net balance of 15%). However, a net balance of -25% reported a fall in investor demand for retail space.
Looking ahead though, respondents in Scotland are more optimistic than seen previously, with a net balance of 7% anticipating a rise in rental values over the next quarter. Respondents expect a rise in rents for office and industrial space (net balances of 14% and 40% respectively). Regarding retail space, a net balance of -32% of respondents expect rents to fall.
This trend of improving rents is expected to continue over the year as well, with a net balance of 12% 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 too (a net balance of 5%). The industrial sector is expected to continue to outperform the other subsectors, with a net balance of 42% of surveyors expecting a rise in industrial sector capital values over the next quarter. Capital values for office space are also expected to increase as a net balance of 6% of surveyors in Scotland expect a rise. However, a net balance of -34% 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 14% anticipating an increase over the next year, the fourth consecutive quarter this balance has been in positive territory.
Neil Gordon, of EYCO LLP in Edinburgh, commented: “There is a worrying lack of new office developments or refurbishments at present due to high construction and finance costs and the inability of developers to raise or commit to the necessary level of capital.”
Al Kay of Dundee City Council, added: “Grade A office enquiries are up with strong demand for high quality office space. Rental values are beginning to appeal to private investors.”
Commenting on the UK picture, RICS senior economist, Tarrant Parsons, said: “The UK commercial property market continues to exhibit a relatively underwhelming performance, as some respondents cite a wait and see approach ahead of the first budget statement from the new Government.
“Despite the market being on tenterhooks for any new announcements, there are reasons to be more optimistic. An improving lending environment is likely to provide support to commercial real estate investment activity going forward, and headline capital value and rental growth expectations are also modestly positive for the coming twelve months, in keeping with the idea that the market has shifted into the early stages of an upturn.”