Both investor and occupier sentiments turn negative as sector faces rising uncertainty
Confidence in the commercial property market has declined, according to the latest data from the RICS UK Commercial Property Monitor.
The third quarter saw both investor and occupier sentiments turn negative, as concerns over the forthcoming Autumn Budget and broader economic pressures weighed on the sector.
The Occupier Sentiment Index fell to -12, marking its lowest point in almost two years. The Investment Sentiment Index also declined, reaching -10.
Nationally, tenant demand decreased, with the retail segment experiencing the sharpest drop at -21%. This represents a notable shift in market momentum.
For the first time since 2012, excluding the pandemic period, occupier demand for industrial property has moved into negative territory. Landlords are responding to rising vacancy rates by offering more generous incentive packages, highlighting increased competition to attract tenants.
A growing divide is evident between prime and secondary assets. Prime office and industrial properties are still expected to see modest growth, while secondary office and retail assets are projected to face declines in both rental and capital values. London remains an exception, with the capital showing stronger demand and greater resilience in rental and capital growth.
Alternative property sectors, including data centres, aged care, multifamily rental, student accommodation, and life sciences, continue to stand out as areas of growth.
Survey participants frequently cited apprehension over the upcoming November budget. Many pointed to speculation about potential tax increases, pension changes, and stricter fiscal measures as factors delaying investment decisions and reducing market activity.
Currently, only 22% of respondents believe the market is in the early stages of recovery, a significant decrease from earlier in the year.
“The latest UK Commercial Property Monitor illustrates reduced market activity,” said Tarrant Parsons (pictured right), head of market research and analysis at RICS. “Both occupier and investor demand experienced slight dips this quarter.
“A cocktail of elevated bond yields, above-target inflation, and fiscal policy uncertainty is creating caution across investors. Landlords remain under pressure to offer increasingly generous incentives as vacancy rates continue to move higher.
“Meanwhile, the appetite for secondary assets continues to wane. Although prime and alternative sectors still offer pockets of resilience, the near-term outlook has become more subdued amid an increasingly challenging near-term macro environment.”
For brokers, the reduced level of confidence in the commercial property market often means greater competition for deals, longer sales cycles, and a need to focus on high-quality clients and resilient sectors. Brokers may also need to advise clients on changing market conditions and help them navigate increased uncertainty.
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