Both investor and occupier demand increased in the West Midlands’ commercial sector during the third quarter, but there is still a significant difference between various sectors.
That’s according to the Q3 2017
In Q3, investment demand for commercial property continued to grow across the region, with 18% more respondents seeing an increase (rather than decline) in investment enquiries.
Demand growth was strongest in the industrial sector and weakest across retail.
As domestic interest increases, interest from overseas buyers also rose across all areas of the market during Q3.
Alongside this, near-term capital value expectations point to strong growth across industrial assets, a relatively strong rise in office prices, while expectations are marginally negative for values across the retail sector.
Occupier demand in the quarter held steady at the headline level, with 26% more respondents seeing an increase in sentiment picks up.
Looking at individual sectors, demand has increased strongly for industrial space (net balance +50%) and also picked up in the office sector, having been flat in Q2.
Meanwhile, demand continued to fall for the second consecutive quarter in the retail sector.
Given the occupier demand picture, it is unsurprising that near-term rent expectations indicate firm growth in the industrial sector, a relatively strong picture for office rents, and a marginally negative one for retail at the regional level.
Looking further out over the year ahead, rental expectations are positive for both prime and secondary industrial space, prime offices and to a lesser extent prime retail space. The outlook for secondary office space remains flat.
Conversely, the year ahead rental expectations for secondary retail are firmly negative, with rents still anticipated to decline.
All-sector rent expectations in the near term are generally positive across the region and most parts of the UK – with London being the exception.
In the capital, negative expectations in office and retail cancel out positive expectations for industrial rent.
Over the next twelve months in London, a generally flat picture is being weighed down by secondary retail and office areas
In terms of valuations, across the region, a strong majority of contributors (85%)
Central London continues to exhibit the highest proportion of respondents viewing the market to be overpriced to some extent (67%).
Meanwhile, 37% of respondents from the South East are now of the opinion that values are stretched relative to fundamentals, a steady increase on 16% who were taking this view three quarters ago.
Finally, during Q3, although views remain mixed, the largest share of contributors feel conditions are consistent with the middle stages of an upturn (35%). In Central London, 73% of respondents
“The feedback to the Q3 survey reflects some of the broader macro issues, with the underlying momentum in the occupier market a little firmer further away from the capital.
“This is also mirrored in valuation concerns with around
“A key issue going forward will be how the market responds to the likely first interest rate rise in a decade next month.
“Given that expectations are only for a modest tightening in policy, the likelihood is that it will be able to weather the shift in the mood music. But this remains a potential challenge if rates go up more than is currently anticipated.”
Our BQ Bulletin emails will land in your inbox at 7.30am, Monday to Friday, with a mix of the latest local business news, national news, and features to inspire you. Sign up here!
Click here to read our privacy statement