The demand for commercial property is at an all-time low, according to the Q1 2018 RICS UK Commercial Property Market survey. The quarterly publication reveals that there is a growing divide between retail property and the industrial sector, with challenging conditions reported across the country.
Online native trading
The survey found that 'calls for retail property' have dropped to their lowest level since 2009, with 43% of respondents seeing a fall in demand.
However, while the popularity of retail space has dropped, prime office rental space appears to have remained strong. This could be attributed to a shift in consumer habits and towards online native trading, whereby commercial businesses no longer require prime retail sites.
Secondary retail rent is also expected to decline across the UK, with 54% of those surveyed predicting a fall. Prime and secondary industrial markets continue, based on Q4 2017 reports, to display a stronger retail projection.
Simon Rubinsohn, RICS Chief Economist, said, "It has been hard to escape grim news from the high street in recent months with a whole host of well known names either closing down or looking to scale back their footprint … this challenging environment is unlikely to let up any time soon."
"Indeed, the feedback regarding what may be described as secondary retail locations points to further falls in rents over the coming year, with landlords under pressure to increase sweeteners to keep tenants in place."
Changing rent expectations
Notably, 43% of those surveyed also reported an increase in availability of property. Hand in hand with the declining demand for retail space, survey respondents largely predicted that pressure on both retail and industrial sector rents will continue to grow.
It is expected that rent growth will slow even further – just 3% of respondents foresaw a rise, which is the lowest reported figure since Q2 2016.
In order to continue to generate revenue, commercial landlords should consider diversifying their income by adding other property types to their portfolio, reviewing incentive packages for existing and potential tenants, or even moving to a semi-commercial mortgage – an option that is increasing in popularity with today’s changing markets.
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