New enquiries in Wales' commercial property market were lower than expected at the end of last year as inflationary pressures on the economy saw tenants become more cautious.
According to the latest Royal Institution of Chartered Surveyors (RICS) commercial property monitor, conditions in the market fell further in Q4 of 2022 as the industry faces a challenging economic environment.
The survey found that demand from both occupiers and investors was lower in the quarter across all sectors of the market in Wales. Overall tenant demand in Wales fell to a net balance of -29% in Q4 2022.
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The fall in demand was most marked in the office and retail sectors (with net balances of -41% and -42% respectively). While demand for industrial property fell for the first time since Q2 2020.
In the investment market, the net balance fell to -48% in Q4 from -4% in Q3 - the lowest since Q2 2020. Steep falls in demand from investors was evident across the office (-59%), retail (-50%) and industrial (-35%) sectors.
As a result, capital value expectations deteriorated with a net balance of -49% of those surveyed in Wales expecting net capital values to fall across all sectors over the first quarter of 2023, compared to -15% in Q3.
While a net balance of -26% of respondents expect a fall in rents over the next three months, compared to -24% in Q3. The office sector saw the biggest change between Q3 and Q4 regarding rent expectations with -28% expecting a decline in Q3, falling to -45% in Q4.
Michael Bruce MRICS of DLP Surveyors in Cardiff said: “New enquiries over the last quarter were not at the level expected. Many occupiers appear to be taking a far more cautious approach and are delaying any possible expansion plans until at least Q1/Q2 2023 once the worst excesses of winter are hopefully behind us. However, with rising fuel bills, increased supply costs, inflationary pressures, staffing issues, and increases in Rateable Values, Q2 2023 may still be seen as optimistic to see any real improvements in the economy.”
Tarrant Parsons, Senior Economist at RICS said: “The investment side of the UK commercial real estate market has been significantly affected by tighter monetary policy of late, with higher borrowing costs weighing on investor demand and prompting an adjustment in valuation levels. Indeed, linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term. Going forward, the broader economic landscape will be crucial in determining how trends across the occupier market unfold from here.”
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