The East Midlands commercial property market continues to pick up, with industrial space outperforming office and retail, according to the Q1 2017 RICS UK Commercial Property Market Survey.
As investor demand increases for regional commercial property across all sectors, with 19% more respondents reporting a pick-up in enquiries, industrial assets have been most sought after in Q1. 38% more respondents saw an increase in demand for industrial space across the East Midlands in the time period. Overseas investment demand also grew across all sectors in Q1, with buyers again showing a slight preference for industrial space. The industrial sector also performed strongly in terms of capital value expectations with 48% more respondents anticipating prices to rise over the next three months.
Looking to other parts of the UK, headline investment demand has now turned positive in most parts of the UK. Scotland is an exception although enquiries did at least stabilise in Q1 (having fallen in each of the three previous quarters). Feedback in Scotland continues to highlight uncertainty surrounding a second independence referendum as a potential challenge to the market. In central London, investment enquiries rose at the sharpest pace since the closing stages of 2015 (+14 net balance), while demand from overseas buyers continued to increase across all sectors. Interestingly, Northern Ireland was the only part of the UK to see a fall in overseas investment enquiries, marking the fourth straight quarter of declining demand.
Moving to regional tenant demand, demand for commercial property increased again with 19% more respondents seeing a rise in demand; demand has continued to rise since Q3 2013. Again, industrial was the strongest performer with 48% more respondents seeing a rise in demand – office and retail are however, struggling for momentum with demand flat for retail and office – where 10% saw a rise in demand.
Consequently, availability across the industrial sector continues to decline, with 40% more respondents noting a fall in industrial space during Q1. The amount of industrial space available has been decreasing continuously since Q3 2014. Space available for occupancy in the retail sector, by comparison, increased again with 28% more respondents seeing an increase in available retail space.
Given the demand and supply dynamics, rents are expected see the strongest growth in the industrial sector, both over the next three months, and at the twelve month horizon. At the same time, offices are expected to see only modest growth, while rents are anticipated fall in the East Midland’s retail sector.
Simon Rubinsohn, RICS Chief Economist, commented: “The results of latest commercial property survey chime with much of the recent generally more positive economic news flow. Significantly, the forward looking indicators are also proving relatively resilient although it would not be a surprise if activity slows somewhat ahead of the forthcoming general election.
“Although around one-sixth of respondents continue to report enquiries from British businesses looking to find space to utilise elsewhere in the EU, foreign investment into the UK is continuing to recover with the RICS overseas demand indicator rising for all sectors at a headline level and in most parts of the country.”
Geoff White, RICS Policy Manager, North & Midlands, commented: “The shortage of industrial and commercial units is a major issue in the East Midlands and a concern for RICS professionals in the region. They have welcomed the government’s intention to develop an industrial strategy across the UK and the focus this will bring to offices, industrial units and commercial sheds. Employment land is being lost to residential schemes to fix the housing shortage, but this means opportunities for businesses to start, grow and relocate are shrinking. In addition to this, uncertainty in the economy means much-needed speculative commercial development is extremely rare or non-existent without some form of public sector intervention.
“Unless the industrial strategy tackles this, the government’s plans to drive economic growth and improve productivity could be in jeopardy.”
