Activity across the UK commercial property market remains subdued, although early signs of improving sentiment are emerging, according to RICS' latest property monitor.

Occupier sentiment improved slightly from -12 in Q3 to -10 in Q4, signalling that downward momentum may be easing after the Budget hit sector confidence in the previous report.

Around 32% of contributors now believe market conditions are consistent with the early stages of an upturn, up from 27% in Q3.

However, RICS said improvement in confidence is gradual, with elevated borrowing costs and a challenging macroeconomic backdrop continuing to weigh on activity.

Overall, RICS said its Q4 monitor suggests that markets “may be approaching a turning point, but recovery is expected to be gradual and uneven”.

RICS head of market research and analysis Tarrant Parsons said: “The Q4 results suggest the UK commercial property market is beginning to find its footing after a prolonged period of adjustment. While near-term conditions remain relatively soft, there are tentative signs that sentiment may be stabilising, with a modest uptick in the proportion of respondents detecting early recovery signals.

“Most notably, expectations for rental and capital value growth have been upgraded across prime markets, suggesting respondents are becoming more confident in the medium-term outlook. Overall, the market seems to be shifting towards more cautious optimism, though elevated financing costs continue to temper the pace of any potential recovery.”

Available space continues to rise across all major sectors, although the pace of increase has moderated. RICS said landlords were continuing to offer higher incentives to attract occupiers, reflecting competitive market conditions.

However, rental expectations for prime assets edged higher, with prime office rents now forecast to grow by 2.5% over the next 12 months, and prime industrial rents by 2.1%.

Investment market sentiment remains negative overall, with the Investment Sentiment Index registering -9, although this represents a slight improvement on Q3. Investor enquiries remain weak across offices, retail and industrial property, RICS found.

There was a notable positive shift in lending conditions, with RICS’ credit availability indicator turning positive in Q4, backing up the narrative that access to finance is slowly improving.

Capital value expectations have also been revised upwards for some prime assets. Prime industrial values are expected to rise by 2%, while prime office values are forecast to increase by 1.9% over the coming year.

Secondary office and retail values are still expected to decline, underlining the continued bifurcation between prime and secondary property.

RICS added that alternative property sectors remain a bright spot, particularly data centres where respondents forecasted a 4.6% rental growth and 5.2% capital value growth over the year.