RICS calls for more flexibility to allow fast change of property uses
RICS has urged the Government to re-examine commercial use classes to aid flexibility of property deployment going forward, as its Q1 survey points to a sharp deterioration in market sentiment – notably in retail.
Following what appeared to be a promising start to the year for the commercial market, social distancing measures and forced business closures in the coronavirus pandemic have now severely restricted activity in the East of England and will continue to weigh heavily on the outlook over the coming months, RICS argues.
Looking at occupier demand, it is worth noting that social distancing measures were ramped up significantly in the middle of the survey collection window.
Separating pre and post lockdown responses at the national level there is a marked deterioration in feedback post lockdown. Looking at the East of England market many more respondents reported a fall in interest from occupiers at the headline level.
The demand for industrial units was flat this quarter but substantially more respondents saw a significant drop off in interest for retail units while others reported a fall in demand for office space, underpinning the headline figures.
Unsurprisingly alongside the fall in demand, the availability of commercial property and inducements to take space both rose, with the retail sector seeing the sharpest rise in both areas.
Against this backdrop, the near term expectations for rent saw more respondents predicting a fall rather than rise. This is markedly different cross sector with retail seeing the largest fall. Rents across the industrial sector are expected to fall at a slower rate.
RICS says the picture looks unlikely to pick up over the next 12 months, with predictions for rent negative in virtually all sub-sectors. Looking at the outliers, retail looks likely to take the largest hit with primary and secondary retail rents predicted to fall by close to nine per cent, respectively. Prime rents in the industrial sector are also now expected to slip.
On the investment side of the market, overall enquires continued to slip and at the same time overseas investment demand declined in each area of the market over the quarter.
Simon Rubinsohn, RICS chief economist, said: “The seismic nature of what is currently taking place in the commercial property sector should not be underestimated.
“Structural changes already underway particularly around ecommerce will be exacerbated, hitting the high street hard. But alongside this, the inevitable rise in agile working as businesses seek to build resilience against future pandemics will undoubtedly lead to a reassessment of demand for office space.
“Against this backdrop, it is critical that the Government engages with the industry to build a collaborative approach to addressing the challenges and help to facilitate the transformation of the commercial property estate to something that better reflects the needs of a 21st century economy and also the continuing shortfall of good quality housing across all tenures.”
Tony Mulhall, associate director, Planning & Development, added: “In the light of current events there is even more of a need to rethink commercial property use-class regulation, which was produced in response to more static conditions, and make the case for greater flexibility.
“However, it is critical to ensure that this change is supported by the application of proper design and construction standards to ensure the end product, be it retail, office, residential or any other segment of the market is truly fit for purpose.”