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Surge in real estate investment and tenant demand points to strengthening economy

Demand for commercial property in the UK is growing close to its fastest pace since 1998 and, along with a surge in investment, reflects the widening economic recovery according to RICS.

In Q1 2015 the UK saw its 10th consecutive quarterly acceleration of demand for commercial properties, with 46% more respondents seeing greater interest. Interestingly, this points to stronger increases in employment with this series providing a two to three quarter lead on official jobs data compiled by the ONS (Office for National Statistics).

In the investment market, enquiries also increased significantly, with 49% more surveyors seeing more prospective investors – continuing the trend of rising demand which began towards the end of 2012. Overseas buyer interest also picked up on the previous quarter, with 34% more respondents seeing more enquiries from overseas investors (17% in the previous quarter).

As availability declines (38% more surveyors seeing fewer commercial properties on the market), the impact of these tighter market conditions on rental expectations has resulted in them edging upwards to the highest headline-level reading since 1998. This is particularly apparent across the industrial and office sectors, while retail rental expectations continue to lag behind.

Looking ahead respondents expect, the office sector to perform most strongly with London leading the way despite increasing concerns over the valuation of prime property in the capital. Significantly, there is also increasing confidence that the more upbeat mood will impact on secondary space with rents and capital projections positive in all locations.

The strength of the latest commercial property survey suggests that the underlying momentum of the economy will continue to accelerate through the course of this year. What is particularly encouraging is that a better tone to the results is visible in all parts of the country and increasingly in secondary as well as prime space. Given that these indicators have historically provided a strong steer as to the performance of the economy two to three quarters out, it is hard not to be encouraged by the conclusions of this report.

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