THE divide in the Scottish commercial property market between retail property and the industrial sector is growing, according to new report.

Results of the Royal Institution of Chartered Surveyors’ (RICS) survey for the first quarter of 2018 show that the weakness in retail appears to be spreading across prime locations, with a challenging backdrop being reported across the whole of the UK.

While there was little change in occupier demand at the all property level during Q1, the sector breakdown for Scotland shows demand for industrial space still rising, with 25 per cent of respondents noting an increase.

This contrasts sharply with retail, which saw demand decline further. A net balance of 37 per cent of respondents saw a fall in demand for retail property throughout Scotland.

As demand for retail property dropped, availability increased in Q1, with 42 per cent more respondents noting an increase (as opposed to a decrease) across the sector. Retail landlords in Scotland also raised the value of incentive packages to entice clients for a third consecutive quarter. This is in contrast to a decline in the availability of industrial space.

Looking at rent growth expectations over the next three months, the same split is visible with contributors expecting to see downward pressure on retail rents growing, alongside rising near-term rent predictions in the industrial sector.

The negativity across retail is pulling down the headline average for rent growth expectations, with 24 per cent more respondents predicting a fall over the next three months, the lowest since Q2 in 2016.

Looking at the sector in more detail, secondary retail rents are projected to decline in all parts of the UK over the coming year, while the outlook is patchy at best for prime retail sites.

Across the UK both prime and secondary industrial markets continue to display stronger rental projections over the year than all other sectors.

On a 12-month view in Scotland, a net balance of -39 per cent are predicting a fall in secondary retail rents. The outlook office rents in Scotland appears positive with a net balance of 42 per cent more respondents expecting a rise.

Simon Rubinsohn, RICS chief economist, said: “It has been hard to escape the grim news from the high street in recent months with a whole host of well-known names either closing down or looking to scale back their footprint. The results from our latest survey of chartered surveyors suggests that this challenging environment is unlikely to let up anytime soon.

“Indeed, the feedback regarding what may be described as secondary retail locations points to further falls in rents over the coming year with landlords under pressure to increase sweeteners to keep tenants in place.

“The flipside of this is the positive trend in high-quality, well-located logistic/industrial sites which continue to be sought after by both potential occupiers and investors despite recent price moves.”