Commercial property Scotland: Latest Rics survey paints mixed picture

Occupier demand for commercial property in Scotland continues to recover, supported by the most resilient backdrop for retail in eight years, a survey today suggests.

A net balance of +4 per cent of Scottish surveyors reported a rise in occupier demand on an all-sector level through the most recent quarter, according to the latest Royal Institution of Chartered Surveyors (Rics) commercial property monitor.

Looking at the various sub-sectors, both office and retail space saw flat demand while a net balance of 13 per cent of surveyors in Scotland noted a rise in demand for industrial space. The net balance for retail demand is out of negative territory for the first time since 2016.

The retail sector has had a torrid time but the latest Rics survey shows the net balance for retail demand is out of negative territory for the first time since 2016.

Overall investor demand remained in negative territory, but less so than before. With a net balance of -7 per cent of Scottish respondents reporting a fall in investment enquiries at all-sector level, this was the least negative outcome since mid-2022.

Regarding rental expectations, rents are expected to be broadly flat over the next quarter at an all-sector level. Examining the sub-sectors, rents in both the retail and office markets are expected to fall. Rents for industrial space are expected to rise through the third quarter, albeit at a slower rate than seen previously.

Rics senior economist Tarrant Parsons said: “Overall activity remains relatively subdued across the UK commercial property market, with conditions seen as generally flat in Q2. That said, respondents now feel the market is moving towards the early stages of an upturn following a challenging couple of years.

“The near-term path for monetary policy will be key to the outlook for investment going forward, although hopes of an immediate easing in lending rates may be optimistic given still sticky services inflation. Away from the cyclical picture, a strong structural trend that continues is the outperformance of prime office markets compared to their struggling secondary counterparts.”

Denis Batts of Denis Batts Property Consultants in Edinburgh said: “There is some nervousness in the air, although this is not yet reflected in prices.”

Angus Stenhouse of Kettlehill Asset Management in Edinburgh added: “There are slow improvements in investor sentiment in the retail sector as debt providers come back into the market.”