The UK’s Commercial Property Market faltered slightly in Q4, although the long-term outlook remains positive, buoyed by a resilient and competitive prime office sector as well as industrial property demand says RICS’ Head of Market Analytics, Tarrant Parsons (pictured).

RICS’ research found that although respondents thought the market had entered an early upturn phase in Q3, in Q4, sentiment went flat.

Retail property saw a fall in demand, but industrial and office demand remained in positive territory (+7% and +3%, respectively), although both figures were weaker than Q3.

There are very different rent expectations between prime and secondary properties, with  Industrial having a net balance of +55% and prime office rents a net balance of +40% of respondents.

In contrast, sentiment towards future rental prices for secondary office and secondary retail space remained negative, with secondary office property rated as low as -45% in London.

As energy costs rise and companies try to entice their staff back into the office with higher-quality surroundings, RICS says that the chasm of interest between high-quality, energy-efficient commercial property and the secondary market is likely to keep growing.

Deteriorated

The near-term outlook for capital values, however, deteriorated in Q4, which is likely to be due to uncertainty in the bond markets. Investment enquiries remain relatively flat to negative for office space (-11%) and retail (-13%). However, industrial space had a positive reading this month at +8%.

RICS Head of Market Analytics, Tarrant Parsons, said: “The closing quarter of 2024 saw sentiment in the UK Commercial Property market soften a little, with bond market uncertainty impacting credit conditions and investment.

The latest announcements by the Chancellor should help support confidence in the real estate sector.”

“This has not however soured long-term confidence in the market. Prime industrial and office assets continue to demonstrate resilience, and the gap between modern, energy-efficient commercial property and the rest expanded again.

“According to some of our respondents, rising rents are enabling developers to refit and improve their properties in what is a competitive prime market.

“Many are employing a ‘wait and see’ attitude towards the commercial property sector and the impact of the government’s policy package, reflected in a flatter outlook this past quarter. The latest announcements by the Chancellor should help support confidence in the real estate sector.”

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