by Brianna Crandall — November 15, 2019 — The latest RICS Commercial Property Monitor for 2019 Q3 (third quarter) suggests overall steady momentum for occupier and investment sentiment. The combination of short-term supply, demand and expectations indicate flatness, albeit with some areas of strength. However, while market conditions remain generally solid for office and industrial sectors, the ongoing shift toward online shopping is contributing to negative metrics in the beleaguered retail market for the third straight quarter, with a fall in tenant and investor enquiries.
Looking to 2020, rental projections point to strong gains across the office and industrial sectors, though the outlook for prime locations is slightly more optimistic than those in secondary markets, says RICS, the global professional body for qualifications and standards in land, property, infrastructure and construction. In retail, there are expectations of a modest uptick in retail rents in prime markets for the next 12 months, while rent values are projected to fall over that same period.
Neil Shah, managing director for RICS in the Americas, remarked:
While there is an industry-wide effort to invest in and transform real estate for a more connected and sustainable future, these innovations in how people live, work and play aren’t yet the standard, especially outside prime markets. What this means for the overall retail sector is continued underperformance, particularly in secondary markets, in comparison to the office and industrial spaces.
Aside from retail, 12-month capital values projections are positive across all non-retail sectors in the study, though secondary markets are instilling considerably less confidence, according to the report. While primary office projections have held firm since Q2, primary industrial projections have cooled, despite ongoing positive sentiment. This aligns with the majority of respondents believing that the market is in the peak phase of the property cycle. This is up from 49 percent in Q2 and 41 percent in Q1.
Tarrant Parsons, economist with RICS, stated:
Real estate leaders are increasingly believing that, after a protracted period of growth, the market is now approaching the top of the cycle. While indicators are still generally solid for other sectors, the troubles in the retail sector show no signs of abating. The downward demand trends, particularly in secondary locations, is likely to result in a significant decline in capital values over the year to come.
RICS Commercial Property Monitors are a quarterly guide to the trends in the commercial property investment and occupier markets. Survey questionnaires opened on September 13, 2019, and closed on October 13, 2019. Respondents were asked to compare conditions over the latest three months with the previous three months, as well as their views on the overall market outlook.
The full Q3 2019: US Commercial Property Monitor and Q3 2019: Global Commercial Property Monitor, as well as Commercial Property Monitors for other countries and additional RICS surveys, are available from the RICS website.