The UK commercial property market has seen a significant drop in confidence and investor demand following the Brexit vote, according to the Q2 2016 RICS UK Commercial Property Market Survey.
Although opinions are mixed, 36% of respondents around the UK think the market is in the early stages of a downturn.
Over half of the respondents in London said it was heading for a downturn.
The survey said investment inquiries fell considerably in Q2 ahead of the referendum: 26% more respondents saw rising demand in Q1, 16% more saw a decline in Q2.
Much of the concerns are linked to further rental growth.
Rising rents increase yield and thus income for investments, essentially defining their profitability. The headline rent of an asset is one part of the equation that defines its value.
Before the referendum, a net balance of 26%, or 26% more respondents, expected rents to rise in the commercial market. Now a net balance of 7% is expecting rents to decline.
This is off the back of falling occupier demand, which failed to rise for the first time since 2012; the net balance fell from +21% to zero in Q2.
In London there is the greatest concern about the sustainability of rents, and the survey predicts a fall of around 3% over the next 12 months.
Jeff Matsu, RICS senior economist, said “Following several years of strong capital value and rental gains, momentum had already appeared to be slowing. Whether or not the sharp deterioration in the RICS survey data is a knee-jerk reaction that will unwind as the result is digested, or the start of a more prolonged downturn, remains to be seen.”
The RICS said the investment inquiry balance fell to -16% in Q2, from +26% in Q1. All sectors around the UK saw a drop in demand, with London again being hit hardest: 41% more respondents than in Q2.