Commercial property downturn continues
The balance of surveyors reporting demand for commercial property fell at the fastest pace for over six years and to the lowest level in eight years, says RICS’ Commercial Property Survey.

Surveyors reported that business demand for commercial property fell in the first quarter of 2008.

30% more Chartered Surveyors reported a fall than a rise in demand compared to 15% in Q4 2007.

All sectors reported a fall for the second consecutive quarter with the retail sector showing the largest decline, dropping to the lowest balance in the survey’s history.

40% more Chartered Surveyors reported a fall than a rise in retail demand, down from 27%.

The continuing credit turmoil and a slowing housing market is weighing upon both retail and consumer confidence.

New occupier enquiries also fell across all three sectors for the second consecutive month and at a faster pace.

Financial turmoil has impacted upon decision making in the business community with many re-evaluating their demand for commercial property space.

Unsurprisingly, the office sector has been the worst hit area. 35% more Chartered Surveyors reported a fall than a rise in new enquiries for offices down from 13%.

The supply side of the market has loosened considerably, although it is too early to tell whether the influx of new property onto the market is simply the result of a deteriorating business climate or also an attempt to avoid the empty property tax which has recently come into effect.

Available space rose in the office sector for the first time in four and a half years while available retail and office space rose at the fastest pace on record.

Looking forward, surveyors continue to be pessimistic.

Confidence in activity fell across all sectors and in retail specifically, it dropped to the lowest level on record.

Also, Surveyors now expect rents to fall in both the office and industrial sectors whilst in the retail market declines in rents are expected to double in the coming quarter.

Commenting, Simon Rubinsohn, RICS chief economist said:

"The drop in tenant demand is a particularly worrying development.

"This raises the possibility that rental growth will continue to weaken as the level of inducements are raised in a bid to keep property occupied.

"The underlying softness in the market will not have been helped by the ending of the tax relief granted for empty property.

"However while commercial property is likely to remain under some pressure for a while to come, from an investment standpoint yields are now approaching levels where they are beginning to offer some value."

A historical index of the RICS Commercial Property Survey can be found at www.rics.org/cps