RICS Commercial survey: office space and industrials still in demand across Scotland, as retail fails to pick up

Alongside this, anecdotal evidence suggests a lack of movement on Brexit continues to deter investors and occupiers across the board.

Demand from occupiers in the Scottish commercial property market saw an overall decline over Q1 2019. However, decline stemmed from the retail sector, where 52 per cent more respondents reported a fall rather than rise in demand. Occupier demand for office space was broadly positive, and the industrial sector (including warehouses), continued to see a steady rise in tenant demand.

As demand for industrial space rose, the number of vacant units continued to decrease as, in contrast, availability rose sharply in retail. The number of vacant retail units has been increasing over the past 18 months across Scotland as the sector continues to suffer. This has consequently seen incentive packages from retail landlords pick up, with 50 per cent more respondents reporting a rise rather than fall in retail inducements.

Alasdair Humphery, JLL Ltd, said: “Fundamentals remain strong in offices and industrials. Structural changes to retail are causing price volatility but demand does exist where value /risks are better balanced.”

Across the UK, contributors are still anticipating further growth in rents across prime and secondary industrial markets over the next twelve months. Meanwhile, for offices, there remains a clear split between prime and secondary, with the former expected to deliver steady rental growth whereas for secondary office space rental growth projections are marginally negative.

As the Brexit debate rumbles on, domestic investment enquiries for commercial property, at the all sector UK level, have declined for two successive quarters. Retail was responsible for most of this decline, however, investment enquiries also fell modestly for offices. Meanwhile, buyers are still keen for industrial units and investment demand for this sector remained positive. Prime industrial assets are predicted to post the strongest capital value gains on a sectoral comparison over the coming year.

Looking across the market, 52 per cent of respondents nationally continue to sense conditions are consistent with the early to middle stages of a downturn, virtually unchanged from Q4.

In each quarter since the Brexit vote took place, survey participants have been asked if they have seen any evidence of firms looking to relocate at least some part of their business as a result.

In each of the two previous quarters, the proportion reporting they had seen signs of this type of activity came in at around 24 per cent. Interestingly, however, this picked up to 33 per cent in the latest results. Going forward, a slim majority (53 per cent) of respondents nationally do now expect relocations to occur. Of course, whether or not firms do decide to relocate will still depend on how the negotiations unfold from here on.