UK commercial property market continues to exhibit a relatively underwhelming performance

The commercial property market in the UK is still seeing an underwhelming market backdrop, according to the Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Monitor Q3 2024.

Some of the positivity seen in the last quarter has been maintained, with another small increase in occupier demand and 44 per cent of respondents citing the early stages of an upturn, but there is yet to be any marked improvements in sentiment.

Occupier demand saw a net balance of +5 per cent in Q3, with industrial property again outperforming other sectors. Although, the net balance of +14 per cent is not as strong as the average over the past decade (+28 per cent) and again, anecdotal commentary in some regions has seen a slowdown for this type of property. Office demand and retail are relatively flat, but retail sees the least negative sentiment since 2022.

As the market hovers, there has been a rise in vacant office and retail space and landlords have opted to raise incentive packages.

For the 12 months ahead, rental projections remain mixed, but across prime space in all sectors rents are expected to rise. Prime sustainable office space remains attractive to occupiers over less sustainable properties.

Investment continues a flat trajectory across all sectors with the most positivity seen for industrial (+14 per cent), while the picture for retail and offices is slightly negative.

Captured through an extra question in the Q3 survey, a net balance of +29 per cent of respondents report that there has been an increase in the level of distressed sales over the past 12 months with landlords unable to pay mortgages due to an increase in interest rates. Looking ahead, distressed sales are expected to rise by a net balance of +42 per cent of contributors. Drilling deeper into the results, retail (64 per cent), office (48 per cent) and leisure (38 per cent) were the most widely cited sectors thought to be susceptible to an increase in forced sellers over the year to come.

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 12 months, in keeping with the idea that the market has shifted into the early stages of an upturn.”