The industrial sector will lead commercial property recovery, with rents, supply and demand forecast to rise in the second quarter of this year, according to data from Robert Irving Burns.
It says industrial rents will edge up 0.1%, supply will climb by 2.6% and demand will lift by 0.1% over the coming three months, says the property investment firm’s latest quarterly Commercial Property Report.
The survey adds that commercial property sales prices per square foot are forecast to drop by 1.6% in the second quarter of this year, says the study, due to inflation remaining higher for longer.
But the survey adds that rents across the whole sector “are beginning to recover” with all four segments – industrial, office, retail and leisure – showing improved forecasts from the first quarter.
It predicts that rents across all four sectors will fall “by just” 0.4% in the second quarter.
In the office market sales prices per square foot are forecast to fall by 2.7%, marginally less than the 3 % predicted in the previous quarter.
The retail sector “continues to be challenging”, with sales prices per square foot expected to drop by an average of 1.3%, however, the study says, this is an improvement on the previous quarterly forecast of a 2.9% drop.
Industrial sales prices per square foot are forecast to drop “by just” 0.8% in the second quarter, “making it the best-performing sector in terms of sales price and has significantly improved from the previous forecast”, which predicted a drop of 2.7% in the previous three months.
And in the leisure sector, sales prices per square foot are forecast to drop by 1.7% in the second quarter, which the survey says, “is higher than [the predicted fall for] retail but not as significant a [forecast] drop as the office sector”.
Robert Irving Burns chief executive Anthony Antoniou says: “While it is far from plain sailing ahead, the outlook is decidedly more positive that the previous quarter forecast.”
“There is consensus among economists that inflation will halve to around 5% by the end of 2023, which will help to ease both the cost-of-living crisis and business appetite for certain capital investments.
“To achieve that, it’s likely that the Bank of England will not only raise base rates [up to 4.5% according to one-year swap expectations] but keep rates higher for longer, which will create a cap to any potential growth and easing of capital expenditure.
“As a result, our forecast has seen rent expectations in industrial move into the black [up 0.1%] and rents overall across commercial expected to be down just 0.4%. Sales values will take longer to recover and are expected to reduce further by 1.6% in the second quarter, with offices seeing the sharpest fall, down 2.7%.
“With the supply of property coming onto the market expected to remain high, up 2.6% in the second quarter, rents are recovering and sales values remain low, it continues to be a buyers’ market for those with access to capital.
“This is particularly pertinent across the retail and leisure sectors, where high yields mean they are less affected by spiking interest rates in relative terms.”
The survey was compiled from responses from an average of 250 senior commercial estate agents between 16 and 24 February.
