The latest RICS Commercial Property Market Survey has revealed a consistent climb in interest in the commercial property sector, pointing to the market gaining momentum once again. Demand from both occupiers and investors has been responsible for this strengthening of fortunes within the prime commercial property sector, which has faced many challenges over the past couple of years thanks to the impact of the pandemic.
Demand growth has accelerated
According to the RICS report, Q1 of 2022 saw an increase in demand growth for prime commercial property – across the UK a rise of 32% was recorded in occupier demand. This is up from the 16% increase that was recorded for Q4 of 2021. It is also the strongest return for this market indicator since 2015. Respondents to the RICS survey remain cautious about macro headwinds but overall there are clear signs that interest is on the rise in the prime commercial property sector, being driven by accelerating demand.
Life returns to the office occupier market
While it was the industrial sector that continued to see the strongest signs of accelerating demand there were also positive signs for the office occupier market. A clear upward shift in the demand for office space saw a rise of 30% for Q1 in 2022, compared to -3% in the last quarter of 2021. Availability of leasable space also rose during the same time period, although this was significantly reduced compared to 2021.
Commercial space rents are likely to rise in 2021
A squeeze on available leasable space, combined with the rise in interest in commercial property, has created higher headline rental expectations for the rest of 2022. This is being primarily driven by the office sector where prime office rents were forecast to rise by more than 40% of the respondents to the RIC survey. This marks a significant shift for the office market into more positive territory, from the negatives of the last quarter of 2021.
London continues to be the driving force
The prime office market in London is likely to continue to outpace all other regions over the coming year – in Central London demand is returning to healthy levels once again. When it comes to the secondary office market, however, the South East now has mildly positive rental projections. That makes it the only region in the country to achieve this for the secondary office market.
Investors are returning too
The RICS report revealed that there has been a 32% increase in the number of buyer enquiries at an all-property level through the first quarter of 2022. While the number of investor enquiries has been rising over the past two quarters this is the most significant figure yet – and the highest level of interest since Q3 2015. Across all three traditional market sectors (office, industrial, retail), the investment enquiries indicator is now positive.
Commercial property is beginning to move into positive territory once again with accelerating occupier demand combined with a significant increase in investor enquiries.