The majority of chartered surveyors are expecting more offices to move out to the suburbs, according to the latest RICS UK commercial market survey for Q2.
The RICS found 64% of respondents believe demand for office space in suburban locations will rise ahead of urban centres over the next two years. Anecdotal evidence also suggested a shift to higher quality office space, with added focus on wellbeing and sustainability.
Given the broader move to home working, 93% anticipate that businesses will scale back their space requirements over the next two years.
PDR piques interest in secondary locations
While interest in retail has fallen, anecdotal evidence in the survey suggested growing interest in secondary units, given the potential for conversion to housing as well as appetite from independent businesses looking for space in local high streets.
Some 76% of respondents consider the market to be in some stage of a downturn, with 12% believing that the market has reached the bottom of the cycle.
In Q2, a net balance of -55% of respondents reported a decline in occupier demand, with retail, offices and industrial each posting decreases.
Although the fall in tenant demand was most felt in retail (-86%) and office space (-79%), a fall was also seen in demand for industrial units, with -13% seeing a decline. This is the first time since 2012 that industrial has posted a negative response.
A net balance of -85% of survey participants expect retail rents to decline in the coming three months, giving the poorest reading since 2008.
In the office sector, a net balance of -62% are predicting a further fall in rents, down from -24% in Q1.
Rental expectations
Looking ahead, rental expectations for the next 12 months are predicted to fall by 4% and 7% respectively for prime and secondary office space.
Secondary retail rents are expected to drop by 14%, while prime retail rents will decline by around 10%.
Rents in the industrial sector are forecasted to fall by around 1%, with prime industrial rents expecting growth of just under 2%.
Tarrant Parsons, economist at the RICS, said: “With demand from both occupiers and investors falling sharply, respondents now anticipate rents and capital values will come under downward pressure while the market adjusts to a drastically changed economic environment.
“In particular, the recent shift into remote working raises many questions across the office sector, with respondents expecting businesses to re-evaluate their office space requirements over the next two years.
“On a brighter note, the outlook is already showing signs of recovery across industrial sector, which remains set to benefit longer-term from an acceleration in the growth of e-commerce.”
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