The commercial property market in Wales continues to pick up, with strong occupier and investor demand evident, particularly for industrial property, according to the most recent Royal Institution of Chartered Surveyors Commercial Market Survey.

Wales recorded the highest balance of surveyors of any UK region (+35 percent) who said that occupier demand increased in the first quarter of the year. A net balance of +48 percent of Welsh respondents said that demand from occupiers for industrial space had increased.

The number of enquiries from investors looking to purchase commercial property in Wales also rose in Q1, according to the survey (a net balance of +29 percent), with demand from investors for industrial property strengthening to a five-quarter-high (a net balance of +39 percent).

Haydn Thomas, of Newport-based Hutchings & Thomas Chartered Surveyors, said: “Although the increase in the demand for commercial premises in South Wales is extremely positive, I have been commenting for some time that this is storing up potential issues further down the line.

“Locally we are experiencing high demand for industrial and office premises from owner occupiers and the lack of supply is starting to drive up capital values.

“The problem is these values are still not at a level to give the margins required on speculative schemes to give sufficient confidence, to developers, to progress. This factor, linked with general concerns with the current political climate, site availability and planning concerns are suppressing supply.

“As St Modwen has proved at its Celtic Business Park development at Llanwern in Newport, if you develop units on spec an occupier can and will be found, especially if the product is offered on a freehold basis.

“Talking to various companies in the area the lack of alternative premises is either seen as potentially having an impact on their operation or is already doing so as they look to expand and grow their business.

“Our valuations department is reporting increased activity with regard to new lending valuations for owner occupier acquisitions which we all hope will filter through to increased lending to developers on attractive terms and thus increase the supply of stock.”

Foreign investor enquiries also increased according to a net balance of 26 per cent of Welsh surveyors – higher than the UK average.

As a result of the occupier and investor demand, both rental and capital value expectations strengthened, with the balance of respondents expecting both to increase in the three months ahead.

However, the supply side of the market remains a concern, with availability of space continuing to fall, according to the balance of surveyors, particularly the availability of industrial space (a net balance of -30 per cent).

Meanwhile, there is no indication that this will be addressed in the near term, with development starts broadly flat, the survey suggests.

Chris Sutton, RICS commercial property spokesman in Wales, said: “UK funds and institutions have returned to the Welsh property market following a post referendum pause, with Cardiff the focal point for both investors and developers. We now see real progress on infrastructure projects across the region and the signing of the City Deal for Cardiff Capital Region provides funding for both the Metro and a portfolio of investment projects. With a City Deal also announced for Swansea Bay, there is now an opportunity to make Wales an increasingly attractive place to do business and invest.”