Commercial property continues to suffer

Thursday, 31, Jul 2008 12:19

Demand for commercial property has continued to fall during the second quarter of 2008 in the developed world in direct response to the credit crunch, while the developing world has thrived.

That is according to the latest Commercial Property Survey from the Royal Institution of Chartered Surveyors (Rics), which finds demand has slipped in all three sectors of commercial property in Europe.

In Western Europe a net balance of -24 surveyors reported a fall in demand for office space than a rise, with figures of -40 and -20 recorded for retail and industrial property respectively.

In contrast, Africa & the Middle East, Latin America and Emerging Asia & Europe all reported net increases in demand for all three sectors.

Furthermore, growth in purchasing activity continued has its downward spiral, with all regions outside Latin America either stagnating or declining.

The weakest investment markets were seen in North America, Australasia and Western Europe.

Indeed, of the more than 50 countries surveyed, seven of the ten worst performing countries are located in Western Europe with the most negative sentiment towards prices for quarter three expected in the Republic of Ireland and Spain.

Outside Western Europe, Hungary, New Zealand and South Africa displayed the most negative sentiment towards future prices with the US positioned only one place above the bottom ten.

In terms of yields, global markets have seen a faster pace of increase over the last three months.

Many buyers have been re-pricing risk further and bidding at lower values as economic signals have sent alarm bells ringing, raising the possibility of tenant defaults.

A rise in yields was recorded in emerging markets for the first time in the survey's history as aggressive inflation fighting in some locations has impacted upon commercial property pricing.

The pace of upward yield shift gathered momentum across many markets in the second quarter as renewed fears over a prolonged economic slowdown has raised risk premiums and the real possibility of increasing tenant default," said Rics senior economist, Oliver Gilmartin.

"The outlook for rents has been pared back across many markets as well as some emerging markets where the battle against inflation has taken centre stage."

Closer to home, the UK continues to fall foul of credit crunch restrictions, with available floor space on the rise across all sectors and rental expectations among the most negative in Europe outside of France.

The number of investment bidders per property has declined at a faster pace over the past quarter while capital values are expected to continue their decent into 2009.

Chris O'Toole