The key findings:
• Over half of respondents expect prime office capital values to decline by up to 10% in 2023
• The outlook for prime retail is only slightly better, with just under half expecting capital values to decline by up to 10%
• However, 54% of respondents believe prime retail rents will remain unchanged this year
• And seven out of ten surveyors expect prime industrial rents to remain the same or rise by up to 5% in 2023
• 68% of respondents reported a deterioration in credit conditions, up from 22% in Q1 2022
Saturday 11th February 2023: Occupier and investment sentiment in commercial property – which includes retail, office and industrial property – declined significantly in 2022, with most chartered commercial surveyors believing the property cycle is now in a downturn phase.
Of the three sectors, it was the industrial sector which recorded the highest investor and occupier sentiment levels.
According to the Society of Chartered Surveyors Ireland’s Annual Commercial Property Market Monitor, 53% of chartered surveyors believe the market is in ‘early downturn’ – up 15% from last year – with a further 22% reporting that the cycle is in ‘mid-downturn’ phase.
The majority of surveyors (53%) expect prime office capital values to decline by up to 10% this year, while just under half (48%) expect prime retail capital values to fall by up to 10%.
With regard to prime office rental values, 42% expect to see a decline in rental values by as much as 10%, while one in three surveyors forecast they will remain the same.
As with the office market, retail has faced many challenges over the last few years, but some positive signs did emerge in the survey, with over half of respondents (54%) forecasting prime retail rental values will remain unchanged in 2023.
Once again, the industrial rental sector continues to paint a more positive picture, with seven out of ten respondents forecasting that prime industrial rental values will either remain the same or increase by 5% in 2023.
Commenting on the finding Arlene Maguire, Vice Chair of the SCSI Commercial Agency Committee, said:
“2022 was a very challenging year. Last year, 72% of those surveyed believed the commercial property market was in an upturn phase. There was a sense of optimism as we emerged from Covid restrictions. But, unfortunately, Russia invaded Ukraine, and we have all seen the economic effects that have had, especially concerning energy prices and inflation.
“The office market figures from the second half of 2022 showed the turning point that is now captured in the market expectations for the market into 2023, as the interest rate environment has shifted and other factors have impacted overall sentiment among investors.
“Negative sentiment in retail has remained consistent since 2018 and has persisted for several reasons, namely Covid and the growing trends towards e-commerce activity and away from retail units. However, the figures do hint at an improvement against expectation as the trend towards the bricks-and-mortar retail outlets is a trend to watch.
“The change in investor sentiment is reflected in our survey findings with 68% of chartered surveyors reporting a further deterioration in credit conditions in the last quarter of 2022, up from 22% at the beginning of the year. This is largely due to the rise in interest rates.
“The outlook for 2023 remains unclear. Investment volumes may remain subdued until the interest rate environment stabilises and inflation rates become less volatile. Feedback from our members suggests that foreign capital is cautious about further investment in the market due to the current economic uncertainty. Surveyors note supply and demand imbalances with industrial property, and this will drive some additional rental growth in this area.
“Anecdotally, the commentary from the survey seems to suggest that the challenging environment may be a short-term issue. Much of this hinges on the outlook for energy costs, interest rates, geopolitical issues, and the conflict in Ukraine.”
The full report is available here
Ends.
About the SCSI and Survey
The Commercial Property Monitor Review and Outlook Report 2023 is informed by the findings of three surveys in 2022, involving 325 chartered commercial and valuation surveyors. The Commercial Property Monitor – Review and Outlook provides net balance index charts illustrating surveyor sentiment on market trends. Net balance is calculated by taking the total number of ‘increase’ responses from ‘decrease’ responses and displaying the result. The index charts provided are weighted composite measures capturing overall market momentum, encompassing variables on supply, demand, and expectations.