Says surveyors
Sentiment towards the London commercial property market does appear to be improving with the focus particularly on the industrial sector, according to the Q1 2017 RICS UK Commercial Property Market Survey.
Despite an improvement on the investment side, London is lagging the national recovery as far as the occupier market is concerned. Indeed, rental expectations for the year ahead are negative in both the prime and secondary office sectors across the capital. Secondary retail rents are also anticipated to decline but prime retail space may prove more resilient to redeem London’s presence in the commercial market.
As investor demand picks up for commercial property in the capital across all sectors, with 14 per cent more respondents reporting a pick-up in enquiries, industrial assets have been sought after in Q1. 26 per cent more respondents saw an increase in demand for industrial space across central and Greater London in the time period. Overseas investment demand in central London also continues to recover after dipping in the first half of last year growing across all sectors in Q1. The industrial sector also performed strongly in terms of capital value expectations with 34 per cent more respondents anticipating prices to rise over the next three months in London and 61 per cent envisaging an increase in prime industrial sites over the coming year.
Headline investment demand has now turned positive across central London, investment enquiries rose at the sharpest pace since the closing stages of 2015 (+14 net balance), while demand from overseas buyers continued to increase across all sectors.
In contrast, the headline RICS tenant demand indicator has been in negative territory albeit it only modestly so for four consecutive quarters. Unsurprisingly, the industrial sector bucked the trend with 20 per cent more respondents seeing a rise in demand.
Availability across London for all sectors edged up slightly over the quarter with retail seeing the biggest increase while supply of industrial space continues to decline.
Given the demand and supply dynamics across the UK’s capital, rents are expected to rise further in the industrial sector, with 26 per cent more respondents reporting this for the next three months. The picture looks more downbeat for both offices and retail.
In London, around 50 per cent of contributor’s sense current valuations are somewhat stretched relative to fundamentals. Nevertheless, this is still noticeably less than the 68 per cent who were of this opinion at the start of 2016.
Khaled Chahal of Trafalgar Real Estate Investment, commented:
“I believe confidence among foreign investors is back and more transactions will lead to a healthier market in the months to come.”
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