By Kristy Dorsey
The availability of vacant office and retail space across Scotland is now rising at the strongest rate recorded since the global financial crisis in what one chartered surveyor described simply as a “toxic” market.
The findings from the latest commercial property market survey by the Royal Institution of Chartered Surveyors (RICS) highlights the difficulties facing Scotland’s high streets, with another surveyor based in Edinburgh warning of “doom” unless vaccines are successful in wiping out the coronavirus. In addition to high levels of vacant premises, RICS also noted that falling demand for retail and office space has not shown any signs of easing.
However, demand for industrial property continues to rise, driven by the need for logistical hubs to service the surge in online shopping brought by the pandemic. Demand has been further supported by the need for larger premises to create Covid-safe work spaces.
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RICS economist Tarrant Parsons said that with the UK economy facing further setback towards the end of last year, together with renewed tightening in restrictions at the start of 2021, it was no surprise that conditions remain challenging across certain sectors.
“Both the office and retail sectors continue to see occupier and investor demand diminish, with expectations for rents and capital values remaining deeply negative for the time being,” he added. “Having said that, the industrial sector seems to go from strength to strength.”
A net balance of 34 per cent of RICS members surveyed in Scotland reported a fall in overall tenant demand.
That was “somewhat lower” than the falls recorded in the second and third quarters of last year, but the rate of decline has not shown any meaningful signs of easing across retail and office properties. The retail sector posted a net negative balance of 79% in the fourth quarter – compared to -92% and -84% in the second and third quarters – while -68% in the office sector compared to -82% and -63% in the second and third quarters.
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In terms of availability, the retail sector posted the sharpest uptick in vacant space since 2009 as a raft of retailers such as M&Co, Harveys, Monsoon, Debenhams and the Arcadia group have fallen into administration throughout the pandemic. The availability of office space also rose at the strongest rate since the global financial crisis, with employers in Scotland under order to keep all staff possible working from home.
The industrial sector was solely responsible for delivering the only positive outcome during the fourth quarter, with a net balance of 44% of those surveyed citing a rise in occupier demand. That marked a strong and continuing improvement from the second and third quarters, when the industrial readings were -23% and -3% respectively.
As a result, the availability of industrial properties declined in the final three months of 2020.
“Indeed, supported by more favourable structural dynamics, demand for industrial/logistics space accelerated noticeably over the latest survey period,” Mr Parsons said. “As a result, already positive rental growth projections across the sector were revised higher in the Q4 results.”
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Three-month and 12-month rental growth expectations in the industrial sector were upbeat, returning net balances of 44% and 57% respectively. Twelve-month rental projections across retail showed no sign of improvement, and expectations were also downbeat across the office sector.
Providing additional comment to the RICS survey, John Brown of John Brown & Co in Edinburgh said much will depend on “political will and the ability to provide business support”.
“Commercial property is now a real risk, support for logistics continues but gloom for retail is clearly a global issue,” he said. “Property is hard to sell quickly, rents are softening and space demand is going to change.
“High streets doomed unless the vaccines work and this contagion is wiped out.”
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