The latest RICS UK Commercial Property Monitor has recorded a “promising improvement” in occupier demand for the first quarter of 2023, suggesting the most difficult period for the property market may now have passed.
RICS found that although the market remained subdued thanks to the combination of higher borrowing costs and the outlook for slow economic growth, market sentiment was not as weak as in Q4 2022, with a “rising share” of respondents feeling conditions were stabilising or beginning to improve.
The monitor reported a headline net balance for tenant demand of -3% in Q1, which is a marked improvement on the -20% recorded in Q4 last year. The industrial sector saw a pick-up in occupier demand, registering a net balance of +16% compared to +6% in Q4.
Tenant demand was flat to marginally negative for office space (net balance -6%) and continued to fall across the retail sector (net balance -23%). However, in both instances, the figures were less negative than in the previous quarter and prime offices are more positive.
Tarrant Parsons, senior economist for RICS, said “Although the picture across the UK commercial property market remains generally subdued in the face of higher interest rates and a soft economic outlook, the latest survey feedback tentatively suggests that the most difficult period for the market may now have passed.
“Indeed, capital value expectations for industrial assets returned to modestly positive territory having fallen sharply at the end of last year. This improvement has been supported by still solid occupier conditions across the sector, with demand for industrial space continuing to outstrip supply.
“Likewise, many of the more alternative sectors such as aged care facilities, life sciences, data centres and student housing display a resilient outlook for the year ahead. By way of contrast, secondary office and retail properties continue to struggle, evidenced by rental and capital value projections remaining deeply negative across both segments for the coming 12 months.”
