Commercial Market Forecast shows signs of recovery, study finds

Commercial Property Sales Price Per Sq. Ft are set to fall by 1.6% and Rents Per Sq. Ft by 0.4% on aggregate as the market shows signs of a spring recovery, according to the quarterly forecast of the Commercial Property Market from Robert Irving Burns (RIB). In a survey of over 8,000 UK commercial estate agents, it found the office market is forecast to see the greatest fall in sales values over the next quarter, with prices per square foot predicted to fall by 2.7% (marginally less than the -3.0% predicted in Q1 2023). This is the sharpest fall across all four sectors analysed, with the next closest 1% improved (Leisure -1.7% sales value growth). Close to a quarter of respondents (24%) believe that office sales prices could come down by over 5% over the period. Office rents, on the other hand, are expected to see some growth, and while they are forecast to drop by 0.4%, this is a 1% recovery on the previous quarter (-1.4% in Q1 2023). The reasons behind this, according to the respondents, is strong demand for high quality (CAT A), flexible and collaborative spaces, which are more limited in supply and could push rents up. Meanwhile, it said the retail sector “continues to be challenging”, with sales prices per square foot expected to drop by an average of 1.3%, however this is an improvement on the previous quarterly forecast ( -2.9%). Rents are also forecast to drop by -0.7%, which is an improvement on the forecast 2.1% rental decrease in Q1 2023. It is the sharpest decline among all the sectors, however, RIB said there remains potential rental growth in high street retail in line with inflation over the year. RIB also found the industrial sales price per square foot is forecast to drop by just 0.8% in Q2, making it the best performing sector in terms of sales price and significantly improved from the previous forecast (a predicted drop of 2.7% in Q1). Indeed the respondents were divided, with 36% of respondents forecasting that prices would rise and 20% believing prices could rise by over 2% with the main variations being due to location and size of property. It added rents in this sector are forecast to increase by 0.1% on average, an improvement on the -0.6% forecast from last quarter. It is the first rental value among the four sectors forecast to move into the black this year, which will further impact yields within the sector. Antony Antoniou, CEO of RIB, said: “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-yr swap expectations) but keep rates higher for longer, which will create a cap to any potential growth and easing of capital expenditure.”

Commercial Market Forecast shows signs of recovery, study finds

RIB also found the industrial sales price per square foot is forecast to drop by just 0.8% in Q2, making it the best performing sector in terms of sales price

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