2022 has seen an increase in demand for office space, as businesses look to rent more UK commercial property.

Respondents to a recent RICS survey have shown a notable increase in UK office space in the first quarter of this year with the net balance improving to +30% from what was a very bleak picture at the end of 2021.

We have also seen changes in the retail sector during the same period as occupier demand moved into a more stable area at (-1% net balance), the first time this reading has been neutral or positive since the beginning in almost 5 years.

The commercial property sector as a whole has seen an increase in occupier demand across all asset classes (retail, office and industrial uses).

We have also see an increase in Investor enquiries for 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 office sector is showing strong signs of recovery

The survey feedback shows 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.

There are some challenges however given the current headwinds facing the UK economy in the 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.