And interest in investing in the nation’s commercial property market is also falling.
In its latest commercial market survey, RICS revealed that a net balance of 62 per cent of respondents believe the market is now in a downturn, up from 53 per cent in the second quarter of the year.
And it noted anecdotal evidence that the ongoing Brexit situation was having an “increasingly detrimental impact” on activity levels.
In the occupier market, tenant demand dropped once again, with the net balance slipping from -13 per cent to -19 per cent. This is being driven by the retail sector, with a net balance of -60 per cent, though RICS noted that demand for industrial space is actual rising, at a net balance of nine per cent.
RICS reported that availability of leasable space was unchanged, bringing to a halt the steady run of falling supply dating back to 2013.
Volatile rent income
While respondents predicted rents for the next three months will rise for the industrial sector, this is not replicated in other areas ‒ around 56 per cent of respondents expect to see a drop in retail rents, the worst reading since the financial crisis.
The study also revealed that interest in investing in the UK’s commercial property market is falling at a faster rate, with a net balance of -15 per cent of respondents seeing a fall in enquiries.
Overseas investment demand dropped to a net balance of -18 per cent, the worst reading since Q2 2016.
However, capital value expectations remain “solid” for prime assets, with expectations that prime offices will rise modestly. Growth is expected to continue, albeit at a slower rate, across the industrial sector too.
Tarrant Parson, economist at RICS, said the positive capital value expectations suggested a “relatively soft landing” for the commercial real estate sector from the downturn, though retail is facing a more “severe” fallout.
He added: “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.”