RICS Commercial Market Survey (Q4) - Capital Economics
US Commercial Property

RICS Commercial Market Survey (Q4)

US Commercial Property Data Response
Written by Sam Hall
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Market sentiment remained close to cyclical lows, with rental and capital value expectations deeply negative for office and retail. But there are signs that the market is nearing a turning point, with a growing share of surveyors perceiving the market to be in the early stages of an upturn.

Big rise in share of surveyors who think the worst has passed

  • Market sentiment remained close to cyclical lows, with rental and capital value expectations deeply negative for office and retail. But there are signs that the market is nearing a turning point, with a growing share of surveyors perceiving the market to be in the early stages of an upturn.
  • The RICS Commercial Market Survey for Q4 showed a slight improvement in occupier market sentiment and deterioration in investment market sentiment. (See Table 1.) But the bigger picture is that market sentiment is comfortably negative for office and retail, but positive for industrial.
  • On the occupier side, the divergence between sectors shrunk for the first time in 2020. At +48, the net balance for industrial occupier demand edged back in Q4. In contrast, office and retail demand turned less negative, with net balances of minus 63 and minus 81, respectively. Nevertheless, while short-term rental expectations improved across the sectors, the outlook for office and retail remains deeply negative.
  • A third of surveyors perceives the property cycle to be in an upturn, up from 10% in Q3. That change is consistent with the improvements in investment enquiries and 3-month capital value expectations. Signs of life were also apparent in the latest NCREIF press release, which referred to a more “normal” number of transactions in Q4. (See here.) At the same time, surveyors report a surge in available investment assets, particularly in the office and retail sectors. (See Chart 1.) Whether this simply reflects a resumption in “normal” market activity or is a sign of sellers looking to offload problem assets remains to be seen.
  • Overall, the latest RICS Commercial Market Survey points to a weak outlook for office and retail, but a strong outlook for industrial. Despite the growing share of surveyors perceiving the market to be in the early stages of an upturn, we expect further falls in rental and capital values for office and retail assets.

Chart 1: RICS Surveyors Reporting Increased Supply Availability in 2020 (% Net Balance)

Table 1: RICS US Commercial Property Survey – Key Balances (%)

Not seasonally adjusted

2018

2019

2020

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Past investment enquiries

18

24

16

11

24

22

9

30

-55

-44

-28

-2

Past occupier demand

23

11

8

28

25

22

12

26

-40

-47

-44

-32

Past availability

12

18

21

27

28

26

15

28

36

40

40

38

Inducements

4

24

15

23

17

20

27

29

44

53

56

61

Expected rents (Next 3 mths)

17

5

14

16

17

22

14

33

-58

-45

-45

-28

Expected capital values (Next 3 mths)

9

18

25

24

12

23

24

31

-61

-57

-35

-21

Source: RICS


Sam Hall, Assistant Property Economist, sam.hall@capitaleconomics.com