Brexit ‘will cause exodus from Scottish commercial property market’

Kingshill Commercial Park in Aberdeen
Kingshill Commercial Park in Aberdeen

Uncertainty over Brexit and the political situation across the UK is continuing to hamper the commercial property market in Scotland, surveyors have warned.

More than 50% of respondents to the latest RICS UK commercial market survey said they expect businesses to relocate nationally as a result.

Respondents also reported a “notable slowing” in the decision time frames being made on commercial properties.

However, the outlook was more positive in the tech sector, which respondents said “continued to flourish”.

Across the UK, occupier demand was broadly flat at the all-sector level during Q2, following only modest increases in each of the last three quarters. The national demand net balance of -2% marked the weakest reading since 2012. The breakdown shows a disparity between the sectors with demand for offices and retail space exhibiting a decline, offset by reasonable growth (net balance of +18%) in demand for industrial property. However, the pace of growth for industrial space has moderated, compared to the previous three quarters.

Near-term rent expectations across the UK showed a similarly mixed picture. While the outlook for industrial space remains firm with 29% more respondents expecting to see a rise in rents, a slightly softer trend is expected for offices and the retail sector. The drop in demand for retail space continues to be attributed by some respondents to the rise in recent years in online shopping. Significantly, the amount of available retail space rose for a second straight quarter.

On the flipside, a greater shift towards online shopping is supporting the demand in the industrial segment across the UK, with respondents noting a squeeze in the supply for leasable space in this area – a prevalent trend since 2012.

Looking ahead, the less buoyant trend in tenant demand has yet to meaningfully impact on longer term rental projections where prime assets look likely to continue to deliver stronger rental performance.

In the UK investment market, 10% more respondents citing a rise in investment enquiries during Q2 (rather than a decline). Mirroring the picture in the occupier market, enquiries in the office and retail sectors were little changed on the previous quarter but continue to rise in the industrial area of the market.

In terms of capital values, projections turned marginally negative in the UK retail sector and are now flat in the office sector. In each instance, these were the weakest since the immediate aftermath of the referendum. Conversely, expectations in the industrial sector remain positive.

Simon Rubinsohn, RICS chief economist, said: “The commercial property market has enjoyed a good run and it is hardly surprising that we are now seeing a flatter trend emerge in the responses to the survey which chimes both with recent economic news flow and the political environment. That said, the underlying picture remains fairly resilient which is highlighted by the fact that medium term rent expectations are still holding up particularly for prime space.

“The key issue for the market remains the interest rate outlook and despite some mixed comments from policy officials in recent weeks, it is hard to see a material shift in the Bank of England’s approach anytime soon.”

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