Tenant demand for commercial property falls

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by Kay Murchie

According to the Royal Institution of Chartered Surveyors (RICS), tenant demand for commercial property fell in the third quarter due to a weak retail sector.

RICS’ Commercial Property Survey published last week said 1% more Chartered Surveyors noted a decline than an increase in demand compared to 12% in Q2 who reported an increase. This is the first time that the net balance has turned negative in more than 2 years.

The turbulence in the credit market has had a negative impact on investment into commercial property assets with capital values declining across all sectors.

The main reason for the falls in demand is the weak retail sector, although office demand has also moderated. New enquiries have held firm demonstrating that expansion may be on hold temporarily until the turmoil in the credit market settles down.

Simon Rubinsohn of RICS said business expansion has been put on hold in the short term with the near term outlook for rents weaker as a result.

The survey established that surveyors are at their most pessimistic in 4 years with 8% more respondents said they expected market activity to ease in the next quarter compared with a net balance of 14% expecting an increase in activity in the previous survey.

In accordance with other statistics, the survey also showed huge falls in investor demand for UK commercial property and falls in capital values as the outlook for property returns has worsened and debt-dependent investors are no longer in the market.

The sector is more dependent on capital market for funding than in the past when lending was based on bank’s balance sheets and as such, the impact of credit disruption has been immediate, Mr Rubinsohn concluded.