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Uncertainty leads to downturn in Welsh commercial market property cycle

RICS UK Commercial Market Survey, Wales, Q3 2019

The Brexit impasse is contributing to perceptions that the Commercial Property Market in Wales is in the downturn phase of the property cycle, according to the Q3 2019 RICS Commercial Property Market Survey.

The latest results show the highest proportion of Welsh respondents sensing the overall market is in the downturn phase of the property cycle since the series began in 2015 (+55% up from +29% in Q2), with anecdotal evidence suggesting that Brexit is having an increasingly detrimental impact on market activity. This is a similar picture to the UK as a whole, where +62% of respondents said that they saw the overall market in a downturn phase.

In the occupier market in Wales, tenant demand reportedly fell at the headline level, with the net balance slipping to -15%, from +2% previously. Once again, the retail sector continues to drive the overall decline (a net balance of -50%). However, demand for office space also fell during Q3, (a net balance of -5%; the first fall reported since 2013). Demand for industrial space continued to rise, and was the only sector to see any growth, although the increase was marginal, as the net balance came in at +9% (down from +24% in Q2).

Respondents to the survey project that rents for the coming three months are expected to rise in the industrial sector; the only sector to see any notable interest from tenants. Unsurprisingly, the retail sector isn’t expected to improve. Some 50% of Welsh respondents expect to see further reductions in rents across the market, the lowest reading since 2012.

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Interest in investing in the commercial property market in Wales fell at a faster pace this quarter, with -16% more respondents seeing a fall in investment enquiries. Overseas investment demand also declined across all three sectors with the net balance of -36%, the poorest reading since Q2 2016.

Capital value expectations in Wales are flat with regard to the office market over the next three months, whilst the net balance of respondents (+19%) expects capital values in the industrial sector to increase in that timeframe.

RICS Commercial Property Spokesman in Wales and Director of Sutton Consulting, Chris Sutton, said: “In many respects it is a similar story in that the industrial market continues to outperform office, whilst retail continues to experience significant challenges. Overall, activity in the investment market is more subdued. However, for well-let property there remains no shortage of local, UK and overseas investors prepared to invest in Wales,” he adds

Tarrant Parsons, RICS Economist, commented: “Although a majority of respondents now perceive the market to be in a downturn, the fact that capital value expectations are still positive suggests a relatively soft landing for the commercial real estate sector is anticipated overall. That said, the fallout for retail is altogether more severe. It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.”

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