Outlook brightens for UK commercial property

Published 27th Jul 2009

Confidence is slowly returning to the commercial property market on the back of reports from surveyors that the fall in tenant demand for offices and shops has started to slow.

Demand for commercial property still fell in the second quarter of 2009, according to a report from the Royal Institution of Chartered Surveyors on Monday, but the pace of decline slowed markedly. The net balances for new inquiries from tenants and confidence were the least negative since the downturn began late in 2007.

After a two-year slump in capital values, there are expectations that property prices will come under pressure from the fall in rents caused by the shortage of new occupiers.

Tenant demand for offices and shops in the UK has been hard hit by the economic downturn, with few businesses looking to expand or take on new lease liabilities.

The slower decline in tenant demand during the last quarter points towards a mild improvement in the lettings market, particularly in the office sector where the net balance actually turned positive for the first time since the third quarter of 2007.

Even so, Oliver Gilmartin, RICS senior economist, played down hopes for a sustained recovery.

“While tenant demand in some areas improved modestly ... the positive move was from extremely low levels,” Mr Gilmartin said.

“It is still unclear whether current activity reflects ongoing rationalisation of space or fresh tenant demand. Furthermore, the rental downturn remains in its infancy with strong levels of surveyor inducements pointing to a challenging lettings market,” he added.

In total, 13 per cent more surveyors reported a fall than a rise in tenant demand compared with 40 per cent in the first quarter. But, in the office sector, 1 per cent more surveyors reported a rise than a fall in tenant demand, a marked change from the negative reading of 37 per cent in the first quarter.

Source: ' FT '

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