Commercial property sector suffers 71% decline

Monday, 9 February 2009 9:38 AM

The Royal Institution of Chartered Surveyors (Rics) has today announced activity across all commercial property sectors fell in the final quarter of 2008.

The Rics survey found most headline indicators fell to new lows; with 71 per cent more chartered surveyors reporting a fall in occupier demand, compared to 53 per cent in Q3.

The Commercial Property Survey discovered all sectors remained firmly in negative territory for the fifth consecutive quarter, and reached their lowest respective balances in the survey's history.

Oliver Gilmartin, Rics senior economist, said: "Concerns as to the depth and duration of the current downturn are being reflected in the commercial property market where investment has been dramatically scaled back.

"New government packages such as loan guarantees schemes and the separation out of toxic assets are welcome developments for both corporate occupiers and investors into commercial property, although will not prevent a further near term weakening in rental prospects on rising space.

"The collapse of sterling and improved valuation metrics compared to continental Europe could encourage some investment interest, as the year progresses. There is already real evidence of this with increasing number of opportunity funds being set up."

The worst hit area continued to be the retail sector with 78 per cent more chartered surveyors reporting a fall than a rise in retail demand, compared to 59 per cent in the third quarter. Rics attributed this find to the rising unemployment which has quashed consumer spending, as well as retail bankruptcies, such as Woolworths and Zavvi.

The value of inducements rose at the fastest pace in the survey's history as landlords tried to counter falling demand with incentives. Confidence towards the rental outlook fell to the lowest level since the survey began, with pessimism bleakest in Central London.

The survey also found 67 per cent more chartered surveyors reported a rise in available floor space compared to 47 per cent in the third quarter, and bargaining power was increasingly shifting towards tenants, who are looking to exercise shorter leases and earlier break clauses.

Despite recent government initiatives, the immediate outlook for lettings activity remains poor as the net balance of surveyors reporting new occupier enquiries in the fourth quarter declined to yet another record low. 62 per cent more chartered surveyors reported a fall than a rise in new enquires for business space, compared to 55 per cent in the third quarter.

In the investment market, capital values fell at the fastest pace to date. However, there are some tentative signs that transaction activity may be due to bottom, albeit at very subdued levels, with less surveyors reporting declines in purchasing activity, particularly in the office sector.

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