Brexit impasse adding to downturn in Scotland's commercial property market, survey finds

The "seemingly never-ending Brexit saga" continues to cast a shadow over the housing market, with flat demand from buyers and sales expectations weakening, according to surveyors.

Brexit uncertainty has contributed to a downturn in Scotland’s commercial property cycle, according to a poll of surveyors.

Half of those taking part in the Q3 2019 Rics Commercial Property Market Survey feel there is an overall trend of decline in demand, with anecdotal evidence pointing to the UK’s departure from the EU as having an impact.

The highest proportion of respondents since 2016 said inquiries from potential investors were lower than in the previous quarter, with 34% more saying investment fell rather than rose.

Findings from the survey also show investing in retail was the weakest, but inquiries were also reported to have fallen in the industrial and office sectors.

Tarrant Parsons, Rics economist, said: “Although half of respondents in Scotland now perceive the market to be in a downturn, the fact that capital value expectations are still positive suggests a relatively soft landing for the commercial real estate sector is anticipated overall.

“That said, the fallout for retail is altogether more severe.

“It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the new year, it may well mean hesitation continues over the near term.”

In the occupier market, tenant demand reportedly fell at the headline level in Scotland for the fourth consecutive quarter, with the net balance slipping to -22%, from -3% previously.

The retail sector continued to drive the overall decline, with the weakest reading since Q3 2008 – a net balance of -70%, making it the worst-performing region across the UK.

Meanwhile, demand for office and industrial space in Scotland was reported to be broadly flat.

Scottish surveyors are cautious about rents over the next quarter, with the overall net balance for three-month rental expectations at its weakest since Q2 2016 at -23%.

This was found to be driven by pessimism regarding retail rents, with a net balance of -65%.

Expectations for office and industrial rents are broadly flat, according to the poll.