Demand for commercial property at ten year low

Permalink: Demand for commercial property at ten year low
by Lin Freestone

The latest commercial property survey from the Royal Institution of Chartered Surveyors (RICS) shows that the level of demand in the second quarter of the year fell to the lowest level since the survey began in 1998.

The fall in demand for the third consecutive quarter has affected the retail, industrial and office sectors. The retail sector continues to be the worst affected, with 64% more chartered surveyors reporting a fall rather than a rise in retail demand. In the first quarter of the year, 42% of surveyors reported a slowdown in demand.

Overall, the survey shows that 50% of the chartered surveyors participating in the study reported a fall rather than a rise in demand, compared to 31% in the first quarter of the year.

The value of inducements increased at the fastest pace in the survey’s history, with the largest increases taking place in the office sector. Rising inducements have also been recorded in the industrial and retail sectors, as tenants’ bargaining power has picked up.

Rental growth is on a downward spiral and evidence suggests the levels of inducements are on the increase as landlords attempt to keep property occupied.

The length of leases declined at the fastest pace in the 10 year history of the survey, with the largest declines taking place in the retail sector, and the smallest declines taking place in the industrial sector.

Both investment demand and capital values declined in all three sectors at the fastest pace since the credit crunch got under way.

The chief economist of RICS has stated that the picture is looking depressed in the near term, but investors are seeing yields begin to reach levels which will offer decent returns.

He considers that 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.