The ongoing uncertainty surrounding the Brexit negotiations is taking its toll on the commercial property market in Wales, according to the Q3 2018 RICS Commercial Property Market survey.

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The quarterly survey results point to occupier demand falling in Wales at the headline level for the first time since early 2013.

Falling demand from potential occupiers in the retail sector is the key factor in the overall drop in occupier demand, though a slowdown regarding office space is also evident. The picture for the industrial sector is more positive.

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Surveyors point to the uncertainty being caused by the Brexit negotiations as a factor impacting on the market, leading to some hesitancy by potential tenants.

Welsh respondents were also the most likely to say in the survey that they had seen evidence of firms looking to relocate away from the UK in response to Brexit (56% of respondents said that they had). And they were the most likely to say that they expect to see an increase in firms relocating away in the next two years (78% said that they expect to).

While data regarding investment enquiries remained relatively upbeat during the quarter, suggesting that potential investors in commercial property in Wales continued to be active, the outlook is less upbeat. Respondents expect capital values to come under pressure in the three-months ahead, particularly in the retail sector.

Chris Sutton, RICS Commercial Property Spokesperson in Wales and Lead Director at JLL Cardiff, said:

“Demand for investment stock remained relatively strong in the quarter, particularly for well-let prime assets. Cardiff remains the focal point for new investors looking at Wales and has attracted new UK funds and overseas investors. There has been a slowdown in the number of enquiries for office and retail floorspace although the industrial market continues to perform more strongly. No doubt Brexit uncertainty is one factor affecting the market, alongside the ongoing transformation in retail.”

Peter Graham of Gerald Eve in Cardiff said: “There is more uncertainty in the market, but there is still keen property demand, although this is getting more selective”.

Malcolm Brymer, a Director at Corporate Property Partners in North Wales, said: “There is too much uncertainty for business at the moment for property to be a resilient performer. I expect a downturn, but hopefully it won’t happen.”

The main findings of the survey were:

The net balance for occupier demand (all sectors) was -12%, indicating that overall occupier demand fell in the quarter. Demand for industrial space (+6%) continued to increase, whilst occupier demand for office space (0%) was reported to have been flat, and demand for retail space was reported to have fallen (-43%).
The balance of respondents (14%) indicated that availability of commercial property space rose. This was driven by the increased availability of retail space (a net balance of 43% of respondents said that availability of retail space rose).
The net balance for 3month rent expectations was +5%, meaning that 5% more surveyors expect rents to rise than fall. Sentiment in the industrial sector (+31%) and the office sector (+6%) was positive. Expectations for retail rents remained in negative territory (-21%).
Investment enquires were up according to a net balance of +10% of respondents. Again, office (+15%) and industrial (+23%) fared better than the retail sector (-9%) according to respondents.
The net balance for 3month capital value expectations was -6%, with capital value expectations in the industrial sector strongest (+15%). The indicator for retail capital values fell (-33%).