Commercial property market still buoyant across Yorkshire

Both investor and occupier demand edged up recently in Yorkshire and Humber’s commercial property market, but demand for industrial space is still most sought after in the region.

These were the findings of the Royal Institution of Chartered Surveyors UK Commercial Property Market Survey for the third quarter of 2017.

Investment demand for commercial property continued to pick up, and proved the strongest in the industrial sector, with 55 per cent of respondents seeing an increase in enquiries (up from 40 per cent in Q2), whilst 41 per cent of respondents saw a rise in investment demand for offices and nine per cent saw a rise in enquiries to invest in 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, interest from overseas buyers also rose across all areas of Yorkshire and Humber’s commercial property market during Q3, and near term capital value expectations point to growth for industrial and office commercial property assets, but little change for values across the retail sector.

Occupier demand also increased in the industrial and office sectors, with 54 per cent of respondents seeing a rise in enquiries to occupy industrial property (up from 39 per cent in Q2) and 44 per cent reporting an increase in demand to let office space (up from 33 per cent in Q2). Meanwhile, occupier demand continued to fall for the fourth consecutive quarter in the retail sector.

On the back of the lack of demand for retail property in Yorkshire and Humber, landlord incentive packages on offer to tenants rose during Q3 with 26 per cent more respondents seeing an increase in incentives offered for retail property (up from 12 per cent in Q2).

Given the more positive occupier demand picture for industrial and office property, it is unsurprising that 61 per cent of commercial surveyors in Yorkshire expect rents for industrial space to rise over the coming three months, with 46 per cent also anticipating rents for offices will also increase.

Only seven per cent of respondents expect rents for retail property to rise over the next three months.

Looking further ahead, 53 per cent of respondents expect to see rents for all commercial property types rise over the coming 12 months, largely due to a lack of available good quality commercial space in the region. Only eight per cent of respondents noted a rise in new commercial property development starts in Yorkshire and Humber in Q3.

In terms of valuations, across Yorkshire and Humber, a strong majority of contributors (62 per cent) sense the commercial property market is fairly valued at present.

Graeme Haigh of Bramleys LLP in Huddersfield said: “The preference shown by occupiers to buy, rather than rent, continues. However, while stock levels remain low, the number of new instructions is edging upward, which may help to take some of the heat out of the sales market by addressing the supply/ demand imbalance.”

Barry Crux FRICS of Barry Crux and Company in York adds: “From June onwards we have seen a noticeable improvement in enquiries which follows on from what we experienced earlier in the year. Prime city centre shops are not being taken up, as national retailers are preferring out of town locations. It will take time for the vacant supply to be taken up. This affects secondary retail stock, although we are encouraged by the continuing interest of independent retailers.

“There is a perceived forthcoming shortage of some office accommodation around York. Capital values will be affected in due course as yields may well push upwards as interest rates go in that direction. The Brexit uncertainty is certainly holding decision makers back.”

Simon Rubinsohn, RICS Chief Economist said: “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 Yorkshire and Humber 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.”