Market Overview

Retail Sector Deteriorates While Industrial Grows

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Challenges in the retail sector have intensified over the current
quarter, while industrial property continues to see exceptionally strong
growth in demand from occupiers and investors alike.

RICS monitors trends in the commercial property investment and occupier
markets on a global and regional scale through quarterly surveys to
industry experts. With a focus on occupier and investor sentiment, it
identifies market trends earlier than other surveys.

Economic conditions have remained solid over recent quarters helping to
underpin the occupier market. Solid income potential should help offset
the impact from tighter Federal monetary policy, for the time being at
least.

Occupier sentiment

Respondents noted a sharp increase in demand in the industrial sector
(+71% reading). Availability in this sector declined and rents are
expected to post stronger gains than other parts of the market.

In contrast, the retail sector saw a steep decline in demand (-59%
reading) as availability rose noticeably, landlords increased
inducements and rentals declined in both prime and secondary locations.

Tenant interest for office space rose moderately, as did inducements and
availability. Some growth is anticipated in prime office rents although
the outlook remains flat for secondary.

Investment sentiment

Respondents reported a strong rise in investment enquiries for
industrial assets and a solid increase in demand for offices but
enquiries fell for the retail sector. Foreign investment demand fell
noticeably in the retail segment and showed a moderate decline in the
office sector.

Predictably, the supply of industrial properties declined over the
quarter and rose for the retail sector.

Respondents upgraded expectations for capital value growth in the office
and industrial sectors relative to Q1. Prime and secondary industrial
values are expected to lead the way with more moderate gains in prime
office prices. Retail projections were revised lower with capital values
anticipated to fall in both prime and secondary locations.

For more information on the Commercial Property Monitor, visit rics.org.

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