North West commercial property market remains buoyant as industrial space proves the most sought after

Demand for commercial property in the North West edged up during the third quarter of the year (Q3) and industrial space is still the most sought after commercial property in the region, according to the Q3 2017 RICS (Royal Institution of Chartered Surveyors) UK Commercial Property Market Survey.

Over a third of respondents (38%) reported a rise in occupier demand for industrial property in the North West (up from 31% in Q2), whilst 27% of respondents saw an increase in enquiries for offices to let (up from just 6% in Q2) and 9% reported a rise in occupier demand for retail space. Although the weakest reading for investment demand was the retail sector during Q3, this was still an improvement on Q2, when no commercial surveyors in the region reported an increase in demand for retail property.

As domestic interest increases, near term capital value expectations point to growth for industrial and office commercial property assets, but little change for values across the retail sector.

Given the more positive occupier demand picture for industrial and office property, it is unsurprising that 38% of commercial surveyors in the North West expect rents for industrial space to rise over the coming three months, whilst 24% also anticipate rents for offices will also increase. Only 12% of respondents expect rents for retail property to rise over the next three months.

Looking further ahead, 31% of respondents expect to see rents for all commercial property types rise over the coming 12 months (up from 19% in Q2), largely due to a lack of available good quality commercial space in the region. Only 2% of respondents noted a rise in new commercial property development starts in the North West during Q3.

In terms of valuations, across the North West, a strong majority of contributors (77%) sense the commercial property market is fairly valued at present. 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.

Mike Redshaw FRICS of Nolan Redshaw – which have offices in Wigan, Rochdale and Bolton - said: “Although the market has softened very slightly over the summer, demand for investments remains strong. There’s a shortage of space in the industrial sector for units up to 10,000 sq.ft. which may lead to some much needed additional speculative development taking place.”

Simon Rubinsohn, RICS Chief Economist commented: “The feedback to our latest Commercial Market Property 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 two thirds of respondents viewing the London market as being dear, whereas the majority of North West respondents feel their local commercial property market is fairly valued at present.

“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 the weather the shift in the mood music. But this remains a potential challenge if rates go up more than is currently anticipated.”