RICS: New commercial developments needed to keep up with market demand

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Investment enquiries within Lincolnshire’s commercial property market have risen, but new developments are needed in the Midlands, according to the final RICS UK Commercial Market Survey of 2016.

Confidence returned to the commercial market in the last quarter of 2016 with interest from investors increasing for the second consecutive quarter.

Growth in enquiries is gaining momentum, as 23% more chartered surveyors reported an increase. Demand from occupiers also increased during the quarter, with a net balance of 21% of respondents reporting a rise.

Despite a slight pick-up in development starts in Q4, demand growth is still outpacing that of supply across the entire region.

Only 6% more respondents reported an increase in new commercial construction activity at the headline level with the office sector reporting the strongest growth and retail remaining relatively unchanged from previous quarters.

Continued strength in occupier demand has led to a further decline in availability, with 18% of chartered surveyors reporting a fall rather than a rise in available properties to lease. A fall in availability in the industrial sector is reported as being the most notable.

Sam Elkington, Director & Head of Office at Lambert Smith Hampton, Lincoln said: “We have seen an increase in the level of demand for employment units and over the past twelve months rentals have now reached new high levels.

“In certain areas rentals in excess of £6.00 per sq ft are being regularly achieved and we have seen the secondary older stock also experiencing continued increase in growth.

“This is mainly down to a lack of supply but also due to the general upturn in business.

“Office demand remains subdued and there is still more than enough supply within the secondhand market to satisfy the overall demand within the city.”

Against a backdrop of reduced availability, inducements fell this quarter across all sectors apart from retail. The value of incentive packages on offer to prospective tenants in the retail sector reportedly rose across the Midlands this quarter and has now risen slightly in each of the last three quarters.

Sam added: “From a retail perspective there currently is not a lot of primary or secondary retail space available in the area and it will be interesting to see how the re-modelling of St Mark’s will free up opportunities within Lincoln.

“General levels of enquiries remain firm and the market now seems to have returned to normal following the Christmas break.”

In the RICS survey, some 20% more respondents expect to see rents rise across all sectors in the coming three months.

Near term rent expectations in the industrial sector have been pushed higher and are now pointing to strong growth in the region, with 28% more respondents envisaging a rise in industrial rents in the coming three months.

On the twelve month horizon rent expectations also remain positive with a net balance of +36% of respondents anticipating growth.

Investment enquiries across the region once again grew in the latter part of 2016.

Overall, 23% more respondents reported an increase in investment enquiries with the industrial sector once again seeing the most interest. Retail investment remained positive this quarter but growth was relatively subdued in comparison to other areas.

Simon Rubinsohn, RICS Chief Economist, said: “The results for the Q4 survey suggest that the commercial property market is continuing to attract investor interest despite ongoing concerns about pricing in the capital and the prospects for the economy more generally. Indeed, the feedback we have received is consistent with a renewed appetite from overseas buyers for UK assets.

“Meanwhile the results for the occupier market highlight the resilience of the economy in the wake of the vote to leave the EU but also clearly demonstrate the demand for large warehouses to support the development of the distribution industry as consumers increasing go online to make their purchases.”