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Commercial property falls further

Monday, 21 July 2008 12:27 AM

Demand for commercial property has fallen to lowest level in a decade, according to the latest survey of the industry from Royal Institution of Chartered Surveyors (Rics).

Some 50 per cent more surveyors reported a fall in demand rather than a rise during the second quarter of 2008, up from 31 per cent in the first quarter.

All sectors reported falls for the third consecutive quarter with the retail, industrial and the office sectors dropping to the lowest balance in the survey's history.

However, it is retail which continues to lead the way downwards, with 64 per cent more surveyors reporting a fall than a rise in retail demand.

This compares to 42 per cent in quarter one.

It is thought the continuing credit turmoil and a slowing housing market is clearly weighing upon both retailer and consumer confidence.

Furthermore, new occupier enquiries also fell across all three sectors for the third consecutive month - adding to the depressed picture.

Financial uncertainty has impacted upon decision making in the business community with many re-evaluating their demand for commercial property space.

Rics finds up to 54 per cent more surveyors reported a fall than a rise in new enquiries for offices over the last three months, compared to 36 per cent in the first quarter.

"The drop in tenant demand is indicative of the increasing pressure on business while the wider economic impact is starting to be felt in the drop in consumer confidence," said Simon Rubinsohn, Rics chief economist.

"Rental growth is on a down ward spiral and evidence suggests that the levels of inducements are on the increase as landlords attempt to keep property occupied. The picture is looking depressed in the near term but investors are seeing yields begin to reach levels which will offer decent returns."

Finally, the supply side of the market is still loose with all three sectors feeling the depressing effects of the continuing climate of financial uncertainty.

Available office space in central London rose at the fastest pace in the survey's history and to a record high - again with 50 per cent of surveyors reported a rise than a fall in available office space.

Chris O'Toole

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