Wednesday January 30, 10:59 AM
UK commercial property demand at worst levels since 2003 - RICS report
LONDON (Thomson Financial) - The latest property survey from the Royal Institution of Chartered Surveyors has painted a gloomy picture of the state of the UK's commercial real estate market, with tenant demand falling to 2003 levels.
The quarterly commercial property survey reveals that surveyors reported a sharp fall in demand for commercial property in the fourth quarter of 2007, with a balance of minus 12 pct more chartered surveyors reporting a rise than a fall in demand compared to a balance of minus 2 pct in the third quarter.
All sectors reported a fall for the first time since the first quarter of 2003 when the net balance was minus 20.
The number of surveyors reporting a decline in office demand also moved into negative territory for the first time in over four years, while the retail sector saw the biggest declines of all sectors, even surpassing the falls recorded in 2005 when the economy was slowing more appreciably.
In fact, demand in the retail sector fell at the fastest pace in six years as a slowing housing market and the recent credit turmoil began to weigh upon both retailer and consumer confidence, the survey found.
'Pessimism regarding the near-term economic outlook has started to make serious dents in market sentiment as surveyors start to see the previously strong office sector join the retail market in decline,' said Simon Rubinsohn, RICS chief economist.
'While finance remains scarce, commercial property's continued reliance on capital funding could see the market dip further,' he added.
New buyer enquiries also fell across all three sectors, having previously held firm against credit market jitters. The retail sector witnessed the sharpest decline in enquiry levels, with the greatest declines in central London and Wales. As for demand for office space, the number of surveyors reporting a fall in enquiries increased to the worst level since the first quarter of 2003, the survey said.
Looking forward, surveyors continued to be pessimistic as a bleaker outlook is anticipated across all sectors.
Surveyor confidence in the office sector turned negative for the first time since 2003, while in the retail sector, confidence dipped to its lowest point in six years. Rental expectations turned negative for the first time in over four years, with surveyor optimism dented across all sectors.
The credit market turmoil continued to have a negative impact on investment in commercial property assets, with capital values declining across all areas.
Surveyors reported declines in capital values within the office sector, as the net balance dropped from minus 17.3 pct to minus 47.8 pct.
The recent financial turmoil has seen investors re-price risk. In the retail market the net balance of capital values fell from minus 20 pct to minus 48 pct, the report said.
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