The Scottish commercial property market is showing signs of life after a tough few years, with occupier demand slowly creeping back up. But while things might be looking brighter, there’s still a lot of uncertainty hanging in the air.
Occupier Demand on the Rise, But Not Everywhere
Overall, occupier demand across all sectors saw a slight increase in the third quarter, according to the Royal Institution of Chartered Surveyors (RICS). This marks the third consecutive quarter of growth, with 4% of surveyors reporting an increase in demand. However, this is a drop from the 11% recorded in the first quarter.
Industrial Space Still in Demand
The industrial sector continues to be a hot spot, with 13% of surveyors reporting an increase in demand. This is down from 33% in Q1, but it’s still a good sign for investors looking for a reliable income stream.
Retail Revival?
Retail, on the other hand, is showing signs of life, with demand now flat after years of decline. This is the first time the net balance for retail demand has been out of negative territory since 2016, which could signal a potential turnaround for this sector.
Office Market Still Struggling
The office market remains flat, which is not a good sign for investors hoping for a quick return on their investment.
Investor Sentiment Improving, But Still Cautious
While overall investor demand remains in negative territory, it’s less negative than before. The net balance of -7% of surveyors reporting a fall in investment enquiries is the least negative since mid-2022. This suggests that investors are becoming more optimistic about the market, but they’re still taking a cautious approach.
Industrial Space Still Favored by Investors
Investors are showing a particular interest in industrial space, with 11% of respondents reporting a rise in investment enquiries for this sector.
Rents Expected to Stay Flat, But Industrial Space is an Exception
Rents are expected to stay flat across all sectors in the next quarter, except for industrial space. Rents in this sector are still expected to rise, although at a slower pace than before.
Capital Value Expectations Mixed
Capital values are also expected to stay flat overall, with a slight increase of 3% anticipated by surveyors. However, the office and retail sectors are expected to see a decline in capital values, while the industrial sector is projected to see growth.
Experts See a Cautious Optimism
Industry experts are expressing a cautious optimism about the market. Denis Batts, of Denis Batts Property Consultants in Edinburgh, notes that there’s “some nervousness in the air,” but that this is not yet reflected in prices. Angus Stenhouse of Kettlehill Asset Management sees “slow improvements in investor sentiment” in the retail sector.
Overall, the Scottish commercial property market is showing signs of recovery, but it’s still too early to say if it’s a full-blown turnaround. Investors are advised to proceed with caution and to carefully consider the specific sectors they’re investing in.