Occupier demand for commercial property continues to fall in Northern Ireland, reveals report

Activity in the commercial property market in Northern Ireland remained weak at the beginning of 2023, according to the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Monitor as the industry continues to face a challenging environment.

Overall demand from occupiers fell in the quarter, with industrial property the only sector where demand wasn’t in decline, however, the demand indicator eased from a net balance of 53% of respondents reporting a rise in Q4 2022, to a net balance of 10% reporting an increase in occupier demand in Q1 2023.

The net balance for occupier demand regarding office and retail space remained in negative territory: -10% and -20% respectively.

In relation to demand from investors, the overall net balance was flat through the first quarter of the year, up from -10% the quarter previous. Looking at the subsectors, a net balance of -11% of respondents reported a fall in investor demand for office space and a net balance of +11% reported a rise in demand for industrial space. Investor demand for retail space was flat through Q1 2023, the first time it hasn’t been in decline since 2017.

As a result of the continued fall in overall occupier and investor demand, rents and capital values are expected to fall too. A net balance of -33% of respondents in NI indicated that they expect net capital values to fall across all sectors over the second quarter of 2023, with all three subsectors expected to see declines. Meanwhile, a net balance of -23% of respondents expects a fall in rents over the next three months. Both of these figures are relatively similar when compared to the quarter previous.

Garrett O’Hare, managing director of Bradley NI, said: “The results of the survey feedback are unsurprising given the challenges and uncertainty that the market is facing. With demand from both occupiers and investors falling, respondents now anticipate that rents and capital values will come under pressure while the industry continues to adjust to a changed economic environment.

"Whilst investor and occupier demand in the industrial sector remains buoyant currently, we can see that retail and office spaces seem to be experiencing more challenges in terms of buyer and tenant demand and capital and rental value achievable for various reasons.”

Commenting on the UK, senior economist for RICS, Tarrant Parsons, added: “Although the picture across the UK commercial property market remains generally subdued in the face of higher interest rates and a soft economic outlook, the latest survey feedback tentatively suggests that the most difficult period for the market may now have passed.

“Indeed, capital value expectations for industrial assets returned to modestly positive territory having fallen sharply at the end of last year. This improvement has been supported by still solid occupier conditions across the sector, with demand for industrial space continuing to outstrip supply.

“Likewise, many of the more alternative sectors such as aged care facilities, life sciences, data centres and student housing display a resilient outlook for the year ahead. By way of contrast, secondary office and retail properties continue to struggle, evidenced by rental and capital value projections remaining deeply negative across both segments for the coming 12 months”.