High streets continue to lag as London outperforms rest of UK

According to the latest Royal Institution of Chartered Survey UK Commercial Property Monitor Q2 2024, there remains a need to prioritise improving the commercial viability of the UK's high streets as retail continues to lag behind office and industrial property.

Overall, confidence in the UK’s commercial property market remained flat in Q2 2024. Meanwhile, the performance gap between prime and secondary property and between London and the rest of the country continued to widen. In a sign of improved positivity, the largest proportion of respondents (41%) believe the market is in an early recovery stage, whilst 34% think the market reached its bottom.

Tenant demand across all sectors also remained flat (+4% net balance) but with industrial property and offices outperforming retail, where respondents are seeing a  slight decrease in tenant demand for retail.

The trend of a split between prime and secondary commercial property across all commercial property types and regions continues.  This is seen most vividly in the office space, with UK prime office rental expectations receiving a +45 % net balance, whilst secondary office recorded a firmly negative -32%, indicating an expected reduction in rental income for secondary units. This continues to indicate a need to address sustainability and other factors in secondary office space.

London is significantly outperforming every other region for prime office property. The Capital recorded a +68% reading for prime office rental growth, above the +29%, +25%, and +29% results for the South, Midlands, and North, respectively

RICS Senior Public Affairs Officer, Sam Rees, said: “When it comes to commercial property, there remains a need to increase investment in retail and the high street. The Government have talked about several ways to improve retail conditions including introducing High Street Banking Hubs, the revamping of long-term empty retail units, devolution, and replacing Business Rates with a new system. These are all good proposals, and if combined with clarity on the use of MEES for commercial property, they could help the sector significantly.”

RICS Senior Economist, Tarrant Parsons, said: “Overall activity remains relatively subdued across the UK commercial property market, with conditions seen as generally flat in Q2. That said, respondents now feel the market is moving towards the early stages of an upturn following a challenging couple of years.

“The near-term path for monetary policy will be key to the outlook for CRE investment going forward, although hopes of an immediate easing in lending rates may be optimistic given still sticky services inflation (even if the headline rate has returned to target). Away from the cyclical picture, a strong structural trend that continues is the outperformance of prime office markets compared their struggling secondary counterparts. In particular, prime offices across London are seen delivering solid capital value and rental income returns over the coming twelve months.”

You may find a full copy of the report at this link.

Commentary from survey respondents regionally can be found in the economic pdf on the back pages – you are free to use these.

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