RICS UK Commercial Market Survey 2021 Q2

RICS UK Commercial Property Market Survey, Q2 2021

  • Survey again points to an improvement in market sentiment, with 56% of survey participants sensing conditions are consistent with an upturn
  • Demand trends appear much more stable for offices compared to recent results
  • Industrial sector expected to deliver further strong capital value and rental growth

The UK commercial property market sees further signs of recovery as restrictions lift, with 56% of respondents to the Q2 2021 RICS UK Commercial Property Survey reporting the market is in an upturn.

This is mirrored in investor appetite as +15% of contributors reported an increase in all-property investment enquiries over the quarter. Unsurprisingly, the industrial sector still leads the way (net balance of +64%) and is the strongest reading on record. Office sector investment demand also picked up from -18% in Q1 to +4% in Q2, pointing to a more stable trend coming through.

Across all sectors, occupier demand recorded the strongest reading since 2016, with a net balance of +16% of respondents reporting a pick-up. Demand trends are now beginning to stabilise across the office sector, mostly for prime space. Interestingly, there is now a positive demand for office space in the South (+7%), and the net balance in London is flat (-3%), up from a net balance of -79% in Q4 2020. As in previous surveys, industrial property continues to lead, with both investor and occupier demand growing again. Now retail has fully reopened, only -25% of respondents reported a fall in demand, noticeably less downbeat than -55% in Q1.

The availability of space unsurprisingly mirrors the demand picture, with availability still running low within the UK industrial sector, as -48% of respondents reported a decline. This is the eighth year in a row that respondents have reported a lack of available industrial space in the UK. While there is plenty of available leasable office and retail space, the recent rise in vacancies does appear to be slowing, although respondents have reported an increase in the use of incentives on offer to encourage take up.

Looking at rents, prime industrial rents are expected to rise by 5% in the year ahead and secondary industrial rents by 3%. With the pickup in demand for office space, prime office rents have turned significantly less downbeat and are expected to fall by 1% in the coming twelve months, whereas secondary office rents are seen to be falling by 4%. Retail rents are expected to continue to fall, as projections stand at -5.5% for prime and -8% for secondary.

For the year ahead, capital value growth remains broadly unchanged, and looking beyond the mainstream markets, respondents expect values to rise for multifamily residential properties, data centres and aged care facilities. Hotels are now only marginally negative (-1%) and student housing moved into neutral territory.

Tarrant Parsons, RICS Economist, said:

“Confidence continues to recover across the UK commercial property market, a point supported by the fact a majority of survey participants now sense overall conditions are consistent with an upturn. Aided by the growth in online spending seen during the pandemic, demand remains robust throughout the industrial sector, producing strong expectations for both rents and capital values in the year to come. Although, on the other side of the equation, changes to work and lifestyle preferences continue to create challenges for the retail and office sectors, a more stable demand picture coming through across the latter over Q2 just hints that trends may be starting to turn in a more favourable direction.”
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