Tenant activity remains low

Tuesday, 5 May 2009 10:11 AM

Tenant demand has fallen in 2009, with supply rising at the fastest pace in its recorded history, according to Rics.

The Royal Institution of Chartered Surveyors (Rics) commercial property survey, released today, found the number of chartered surveyors reporting a rise in floor space rose faster than in any other in the survey's history.

Demand across all sectors continued to fall, although the pace of the decline did ease. Rics said surveyors "expected rental demand to accelerate on the back of a record increase in available floor space". There are now 65 per cent of chartered surveyors reporting a rise than a fall in supply, up from 57 per cent in the previous quarter.

The outlook for those with investments in the rental sector is bleak, with the survey finding 80 per cent of surveyors are expecting a fall rather than a rise in tenants. The value of inducements, a lead indicator of future rental trends, rose at the fastest pace in the survey's history, as landlords continued to try to boost demand with incentives.

Oliver Gilmartin, Rics senior economist said: "Whilst indicators have moved off historic lows, the reality is that fundamentals in the occupier market continue to deteriorate as companies remain in consolidation mode. Landlords are ramping up inducements as they attempt to secure a letting with sharply rising available space exerting greater downward pressure on rents.

"The investment market continues to see declines in transaction activity although at the slowest pace since the onset of the downturn. Whilst it is still too soon to point to an end in price falls, deal activity should be picking up by the end of the year as those with deep pockets move in."

All sectors remained in negative territory for the sixth consecutive quarter, although the pace had slowed. Although Rics said "the immediate outlook for lettings activity remains poor", new inquiries for business space improved, with the least negative reading for a year.

Mr Gilmartin added: "Given the gloomy backdrop for the sector and expectation of further rises in vacant space, Rics is disappointed that the government failed to address the issue of empty property rates in the recent budget. This is encouraging the demolition of perfectly good buildings, discouraging speculative development and could result in more far reaching problems when the economy starts to pick-up again."

"The market continues to show signs of tenant apathy, with many companies still focusing on running their business rather than considering their property strategy. Saying that, post summer may see an increase in occupier demand once those business decisions have been made and implemented," said Paul Bennett of NB Real Estate.

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