UK office space demand bounces back in 2022, says RICS

The start of 2022, saw an increase in the demand for office space, as new tenants look to rent more UK commercial property, according to the RICS Commercial Property Market Survey, Q1 2022.


Respondents to the survey saw a notable increase in UK office space demand in Q1 2022 with the net balance improving to +30% from a flat picture at the end of 2021.


A considerable change in sentiment was also seen in the retail sector, as occupier demand moved into relatively neutral territory (-1% net balance), the first time this reading has been neutral or positive since the beginning of 2017.


The commercial property sector as a whole has reported an increase in occupier demand at the all-sector level (retail, office and industrial uses).


Investor enquiries also rose in the first part of 2022, with the strongest figure since Q3 2015. Moreover, for the first time since 2017, investment enquiries are now in positive territory across each of the three traditional market sectors separately (office, industrial and retail).


Investor demand for office space rose in 2022


The investor demand for office space rose from a net balance of +5% at the end of 2021 to +23% in Q1 2022, and the net balance of respondents predicting a rise in capital values for the prime office sector is the most positive since Q4 2019 (+37% net balance).


With the jump in occupier demand for new office space, rents are expected to rise with a net balance of +19% expecting a rise, compared to +7% in the last quarter.


On a regional level, rent for office space in central London are anticipated to outpace most other UK regions, while the South East remains the only region in which secondary office space is predicted to see growth.


The latest research published by RICS in March has shown that high-quality and well-managed commercial real estate, such as office space  is integral to levelling up UK towns and cities.


The office sector is showing strong signs of recovery


Tarrant Parsons, RICS economist, commented: “The latest survey feedback points to demand from both occupiers and investors gaining momentum over the quarter, with the office sector in particular now showing signs of recovery.


“This has led to an upgrading in expectations for capital value and rental growth across prime offices, while the prolonged downward trend in portions of the retail sector also now appears to be easing.


“That said, given the current headwinds facing the UK economy in form of sharply rising energy prices, higher interest rates and general cost of living pressures, there is understandably a lot of caution regarding the potential impact this could have on market conditions going forward.”


The report has emphasised the key role the commercial property sector plays in the UK


Jonathan Hale, head of government affairs at RICS, added: “UK commercial property is clearly still attractive to investors and UK Government should work across the country to engage with the sector to build on this positive outlook.


“The recent RICS commercial real estate impact report emphasised the key role that the commercial property sector currently plays in the UK and its future role in driving forward economic recovery across the UK.


“As town centres, high streets and offices start to recover following the pandemic, a thriving commercial real estate industry will be crucial to support the government’s levelling up and net zero ambitions in the months ahead.”


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Photo by Nastuh Abootalebi on Unsplash

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