Global markets beginning to feel affects of subdued demand

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by Lin Freestone

The latest survey of the global commercial property sector from the Royal Institution of Chartered Surveyors (Rics) indicates that demand for commercial property fell for the first time in four years during the first quarter of 2008.

Of the global surveyors reporting, 14% recorded a fall rather than a rise in demand. This marks a reversal of the balance of 9% of surveyors reporting an increase in demand during the second half of 2007.

A senior economist from Rics noted that, although tenant demand is still rising across emerging markets, it is at a more muted pace as multinationals feel the pinch from the tougher economic climate.

Demand for office space in North America and developed Asia, retail demand in Western Europe and Australasia, and industrial demand in Africa and the Middle East, were the areas which suffered the most.

The Western European investment market appears to be the healthiest and is managing to correct the fall in demand in the property cycle.

Australasia is expected to be the worst performer during the summer, with Japan also predicted to suffer price declines and falling rents.

During the first three months of 2008, 39% of surveyors reported a fall in demand rather than a rise. This is a marked acceleration from the 16% reporting a fall during the second half of 2008.

What started in the developed world is now spilling over into investment activity across several emerging markets.

In the UK, Rics reports that the market continues to suffer from credit crunch restrictions, with available floor space still rising as tenant demand eases back.

The outlook for the coming quarter remains subdued, with 23% more surveyors expecting rents to fall than rise.