One in three surveyors reported evidence that companies were considering relocating outside the UK.

Uncertainty over Brexit is hitting demand for commercial property amid growing evidence that businesses are considering relocating outside the UK.

A third of commercial property surveyors said they had seen evidence that companies were looking at relocating at least part of their business outside the UK as a result of Brexit, up from 24% at the end of last year. 

They also reported a fall in both occupier demand and investor appetite for commercial premises, such as warehouses, shops and offices, during the first three months of the year, according to Royal Institution of Chartered Surveyors (RICS).

But conditions varied significantly according to property type, with demand remaining strong for industrial property and continuing to weaken for shops.

Why is this happening?

Uncertainty over the terms on which the UK will leave the EU was blamed for the lacklustre state of the commercial property market.

Anecdotal evidence suggests the lack of a clear outlook is deterring both investors and occupiers from making decisions.

Tarrant Parsons, RICS economist, said: “Trends across the UK commercial property market in the early part of 2019 have continued in a similar vein to those reported last year.

“Brexit uncertainty is again cited to be a negative influence on market activity, causing some occupiers and investors to hesitate as they await further clarity on the future direction of policy.”

What’s occupier demand like across the different sectors?

There was a steep decline in demand from businesses to rent retail property, as shops continue to be impacted by the growth in e-commerce.

As a result, the number of vacant shops rose sharply, continuing the pattern seen during the previous 18 months.

Occupier demand for office space was broadly stable, although there was a slight rise in availability for the second consecutive quarter.

The rising vacancy rates have led to an increase in incentive packages being offered by landlords of both offices and shops.

Industrial properties, such as warehouse, bucked the trend, and continued to post a steady increase in tenant demand, leading to a fall in availability and expectations that rents will rise.

And what about investor appetite?

Uncertainty caused by Brexit has also impacted investor appetite in commercial property, with domestic investment enquiries falling for the second consecutive quarter.

The bulk of the decline was seen in the retail sector, but investment enquiries also fell modestly for offices.

By contrast, buyers were still keen to snap up industrial property, with prime premises expected to see the strongest price gains over the coming year.

Overseas investment also declined during the quarter, with the majority of surveyors saying conditions in the commercial property sector are now consistent with the early to middle stages of a downturn.

Top 3 takeaways

  • Uncertainty over Brexit is hitting demand for commercial property
  • A third of commercial property surveyors said they had seen evidence that companies were looking at relocating at least part of their business outside the UK
  • They also reported a fall in both occupier demand and investor appetite for commercial property during the first three months of the year

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