The divide in the commercial property market between retail property and the industrial sector is growing, according to the Q1 2018 RICS UK Commercial Property Market survey.
According to the survey, the weakness in retail appears to be spreading across prime locations, with a challenging backdrop being reported across the whole of the UK.
While occupier demand at the all property level was unchanged in Q1, the sector breakdown shows demand for industrial space still rising, with 31% of respondents noting an increase. This contrasts sharply with retail, in which demand not only declined further but at an accelerating rate. A net 43% of respondents saw a fall in demand for retail property, which is the weakest reading since 2009.
As demand for retail property dropped, availability in the sector rose significantly in Q1, with 43% more respondents noting an increase (as opposed to a decrease). Retail landlords also raised the value of incentive packages to entice clients for a fourth consecutive quarter. This is in contrast to a decline in the availability of industrial space.
Looking at rent growth expectations over the next three months, the same split is visible with contributors expecting to see downward pressure on retail rents growing, alongside rising near term rent predictions in the industrial sector. The negativity across retail is pulling down the headline average for rent growth expectations, with just 3% more respondents predicting a rise rather than fall over the next three months, the lowest since Q2 2016.