Retail property demand struggling because of economic uncertainly

Retail property demand struggling because of economic uncertainly

recession

Retail landlords are increasingly resorting to offering incentives to let their premises last quarter as demand continued to struggle, according to the latest RICS UK Commercial Market Survey.

With occupier demand now having fallen for the past year, the number of landlords offering inducement packages, such as rent-free periods or financial incentives, on retail premises saw a notable increase. Last quarter a net balance of 24% more respondents reported rises (from -1%).

Surveyors’ expectations for future rents were suitably downbeat, with interest in retail floor space falling. As a net balance of 28% more respondents predicted values to continue to fall over the coming three months.

Nationally, overall demand for commercial property remained relatively subdued, with 7% more surveyors seeing a fall rather than a rise in interest from potential occupiers. Uncertainty over the economic prospects for the UK in the light of the continuing turmoil in the euro area is clearly impacting on the appetite of businesses to take on more space. As a result, expectations for rents continued their slide for the 19th consecutive quarter.

One segment of the market that is continuing to buck the trend is central London offices. Fresh demand for prime offices in the capital continues to run ahead of new supply which is underpinning rent levels. Significantly, 26% more surveyors anticipate further rents increases over the next quarter.

The less negative trend in capital values seen last quarter across some parts of the country seems to have reversed. The Midlands, South and the North all reported negative readings, while London was the only area to see values increase, benefiting as it does from significant overseas investment.

Simon Rubinsohn, RICS chief economist, said: “It seems that ongoing economic uncertainty is continuing to take its toll on the retail sector in particular and landlords across much of the country are having to encourage would-be occupiers in any way that they can. Moreover, with demand set to remain relatively downbeat, it is unlikely that the rental picture will see any significant improvement in the near term.

“London still appears to be where the most activity is taking place. Prime office space continues to be sought after and rental expectations are still rising. Unfortunately, the more positive story in the capital will only begin to ripple out if the economic news flow begins to improve which, at this stage, appears some way off.”