The Royal Institution of Chartered Surveyors (RICS) has recently released their Commercial Property Monitor which sheds light on the current scenario of Scotland’s commercial property sector. For those considering an investment in this domain, here’s a simplified breakdown of what these figures mean and how they might influence your decisions.
Occupier Demand: A Mixed Bag
The demand from businesses looking to rent or buy commercial spaces in Scotland has largely remained unchanged from the last quarter. The overall demand has seen a slight dip, with a net balance of -1%. But this doesn’t give the full picture.
Breaking Down the Sub-sectors:
- Industrial Spaces: These have seen a promising surge, with 16% more respondents observing an increase in demand.
- Office Spaces: A moderate growth here too, with a 9% increase.
- Retail Spaces: This sector continues to face challenges, though there’s a silver lining. While there was a decrease in demand (net balance of -30%), it’s less severe than the drop of -46% seen a year ago.
Investor Interest Declines
For those eyeing an investment angle, it’s worth noting that there’s been a decline in enquiries across all sub-sectors. Here’s a snapshot:
- A significant 38% decline in office space investments.
- A 23% decrease in industrial spaces.
- Retail properties saw the most marked retreat with a 41% dip.
Capital Values and Rents: What’s Expected?
There’s a cautious outlook concerning the value of these commercial properties. A net balance of -23% of respondents predicts that the capital values (the inherent value of the property) will continue to decrease across sectors for the last quarter of 2023. This sentiment has been consistent for five straight quarters.
On the brighter side, the rental landscape looks somewhat promising:
- Office and Industrial Rents: Both sectors are poised for growth, with expected increases by 12% and 30% respectively.
- Retail Rents: However, the retail sector might see a decline in rents, with an anticipated drop by a net balance of 27%, a notable shift from the -4% in Q2.
Expert Opinions
Douglas Wilson from Kintyre LLP in Glasgow highlights the potential economic challenges in the near future but remains optimistic about an eventual boost in confidence for both occupiers and investors. Euan Cameron of Tayside Valuation Joint Board echoes this sentiment, particularly noting that while office demand in areas like Angus is low, the industrial property market remains robust.
RICS Senior Economist, Tarrant Parsons, adds a UK-wide perspective, pointing out that the larger commercial property market is grappling with higher interest rates and softening demand. However, there’s a marked interest in prime offices, indicating a post-pandemic trend favouring quality and energy-efficient spaces.