RICS Commercial: Retail sector in Scotland still under pressure
Much of the Scotland’s commercial property retail sector is under pressure, as contributors expect occupier demand to fall further, according to the Q2 2018 RICS UK Commercial Property Market survey.
The quarterly survey results show a continued downturn across the retail sector in Scotland, in contrast with the industrial sector which attracted solid demand from occupiers and investors.
Demand from occupiers across all sectors during Q2 remained quite flat throughout Scotland, however, the retail sector was the only area to post an outright decline, with 42 per cent more respondents noting a fall in demand over the period.
By way of contrast, office demand held broadly steady, while tenant enquiries continued to rise in the Scottish industrial sector.
This pattern is also reflected in the availability of space with empty retail units becoming increasingly visible but a lack of good quality industrial/ logistic opportunities. Given the demand supply picture, it is unsurprising that rents are predicted to increase for both prime, and to a lesser degree, secondary industrial space. By way of contrast, although the pressure is most intense on secondary retail, the prime retail rent indicator is also now in negative territory across the UK. Prime office rents are also expected to show modest gains with the secondary office space, at least at a headline level, broadly flat.
David Castles, Ian Philp Glasgow Ltd, said: “Secondary retail has seen a significant downturn with the reduction in consumer spending, increased base costs and the continual growth of internet shopping. This sector will be required to reinvent itself to generate future growth.”
The investor market to a large extent mirrors the patterns in the occupier market. The headline number for enquiries showed some growth in Q2, with a net balance of 11 per cent more chartered surveyors reporting an increase in investor demand. Industrials attracted growing interest across Scotland over the last three months, although retail was increasingly out of favour, with 21% of respondents reporting a decline in investment enquiries (net balance). The UK trend in capital values will follow this with secondary retail most vulnerable and prime industrial predicted to show the strongest gains.
On a UK level, following an additional set of questions included in the latest survey, just over one-third of respondents reported seeing an increase in the usage of Company Voluntary Arrangements (CVAs) over the past year, with around two-thirds anticipating that this will lead to more retailers inserting CVA clauses into contracts going forward. As such, it is unsurprising that over 70 per cent of contributor’s sense investors will be looking to scale back exposure to the sector.
Simon Rubinsohn, RICS chief economist said: “The challenges being faced by retail not surprisingly come through strongly in the latest set of results, but the counterpoint to this is the ongoing strength of demand for good quality, well located industrial/logistic sites. Indeed, the lack of availability of stock in the industrial segment of the market and the generally sluggish development pipeline, is pointing towards further healthy gains in pricing.”