The first quarter of this year has shown a significant increase in demand for commercial properties in Scotland, specifically in the office and industrial sectors. This information comes from the latest findings of the Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor.
Key Findings
- Increased Demand: A net balance of 11% of surveyors reported a rise in overall demand for commercial property, marking the highest this balance has been since Q2 of 2022. This places Scotland as the second most dynamic market across all UK regions, following closely behind central London.
- Sector Performance: Demand in office and industrial spaces has seen a notable increase with net balances of 17% and 33% respectively, showing significant improvement from the previous quarter.
- Retail Sector Struggles: Despite a small improvement, the demand for retail space continues to struggle, with a net balance of -17% of surveyors noting a decrease.
Investment Trends
The overall investor demand for commercial properties remained negative for the seventh consecutive quarter, with a net balance of -16% of surveyors indicating a decline. More specifically:
- Office Space: There was a noted decrease in investor demand for office space, with a net balance of -30%.
- Retail Space: Investor demand for retail space also continued to decrease, with a net balance of -35%.
- Industrial Space Shines: Contrasting the other sectors, the industrial sector saw an increase in demand, consistent with the trend in occupier demand, at a net balance of 17%.
Rental and Capital Value Projections
Surveyors are optimistic about the rental outlook for the coming quarter:
- Rental Growth: Anticipations for rental increases are particularly strong in the office and industrial sectors, with net balances of 36% and 48% respectively.
- Retail Sector: While expectations for the retail sector remain negative, the outlook has improved slightly from previous quarters.
Looking ahead to the next three months, there are modest expectations for an increase in overall capital values—the first such expectation since early 2022:
- Industrial Sector: The industrial sector is expected to continue its strong performance, with a net balance of 44% of surveyors anticipating a rise in capital values.
- Office and Retail Sectors: No growth is expected in office space capital values, and a significant decline is expected for retail spaces.
Over the next 12 months, surveyors anticipate an overall rise in capital values, continuing the positive trend observed this quarter.
Economic Impact and Analyst Insights
Tarrant Parsons, RICS’ senior economist, highlights that the current data indicates a cautious but recovering sentiment in the UK commercial property market. The broader economy’s return to growth and the prospect of interest rate cuts later in the year are expected to ease credit conditions, which hasn’t been seen since 2021. These factors are likely to bolster market activity and stabilise capital values as the year progresses.