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24 May 2019
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© Getty Images
©Getty Images

08 May 2018 Herpreet Kaur Grewal


The demand for retail space is at its lowest level since 2009, explains Herpreet Kaur Grewal.

The divide in the commercial property market between retail property and the industrial sector is growing, according to the Q1 2018 RICS UK Commercial Property Market survey. 

The weakness in retail appears to be spreading across prime locations, with a challenging backdrop being reported across the whole of the UK.

While occupier demand at the all property level was unchanged in Q1, the sector breakdown shows call for industrial space rising, with 31 per cent of respondents noting an increase. This contrasts sharply with retail, in which demand not only declined further but at an accelerating pace. A net 43 per cent of respondents saw a fall in calls for retail property – the weakest reading since 2009.

As demand for retail space dropped, availability in the sector rose significantly in Q1, with 43 per cent more respondents noting an increase (as opposed to a decline). Retail landlords also raised the value of incentive packages to entice clients for the fourth quarter running. This was in contrast to a decline in the availability of industrial space.

Looking at rent growth expectations for the next three months, the same split is visible, with contributors expecting to see downward pressure on retail rents growing, alongside rising near term rent predictions in the industrial sector. The negativity across retail is pulling down the headline average for rent growth expectations, with just 3 per cent more respondents predicting a rise rather than fall over the next three months – the lowest since Q2 2016.

Looking at the sector in more detail, secondary retail rents are projected to decline in all parts of the UK over the coming year, while the outlook is patchy at best for prime retail sites. Both prime and secondary industrial markets continue to display stronger rental projections over the year than all other sectors.

On a 12-month view, 24 per cent more respondents predict a fall in prime retail rents, while a net balance of -54 per cent are predicting a fall in secondary retail. The outlook for prime office rents appears positive (net balance +38 per cent).

Industrial upturn

Trends in the investment market show headline enquiries rose for a seventh successive report, with investor demand increasing strongly for industrial assets, marginally for offices, but falling in the retail segment. Interest from foreign buyers, meanwhile, was flat across all sectors in Q1. 

The supply of property for investment purposes continued to decline in the industrial and office sectors. Retail again bucked the trend, with supply increasing.

Simon Rubinsohn, RICS chief economist, said: “It has been hard to escape grim news from the high street in recent months with a whole host of well-known names either closing down or looking to scale back their footprint. …this challenging environment is unlikely to let up anytime soon.

“Indeed, the feedback regarding what may be described as secondary retail locations points to further falls in rents over the coming year with landlords under pressure to increase sweeteners to keep tenants in place. The flipside of this is the positive trend in high-quality, well-located logistic/industrial sites, which continue to be sought after by both potential occupiers and investors despite recent price moves.”