Commercial property report (RICS)

Citation

(2002), "Commercial property report (RICS)", Property Management, Vol. 20 No. 1. https://doi.org/10.1108/pm.2002.11320aab.012

Commercial property report (RICS)

Commercial property report (RICS)

Business demand for commercial property has fallen for the first time in two and a half years, says a RICS report published in July.

Over the second quarter 2001 16 per cent more chartered surveyors reported a fall in new business occupation than a rise, compared with 7 per cent more registering a rise in the first quarter. The downturn in new occupation reflects concerns over the state of the economy and is particularly apparent in take up of office and retail property. New enquiries also fell and there are expectations of further falls in quarter three.

The fall in office occupier demand is the first since the aftermath of the 1998 emerging markets crisis. New take up was weakest in London where the sickly information, communication and telecom sectors were joined by ailing financial and business interests. Expectations of occupier activity for quarter three have fallen to their weakest since the end of 1998. However, business parks held up well, with the north particularly resilient.

Overall though, rental prospects have eased, with only modest rises amid suggestions that lease durations may even fall following two years of robust growth, as the pendulum swings back in favour of the tenant.

A healthy period of growth in household spending, falling interest rates, continued employment growth and a buoyant housing market have upheld consumer confidence. Such conditions would usually pep up the retail property sector, but prevailing competitive pressures have stymied profit margins. Rental expectations are the lowest since 1998.

The industrial sector has fared better, with the strength of distribution and retail activity offsetting the decline in manufacturing output. Tight supplies shored up rental expectations which have been at a virtual standstill through much of 1999 and 2000.

Again the north stands out as the only region expecting to see higher demand in the next quarter, as competitive pressures force firms to seek out cheaper accommodation.

New development in the office sector saw a rise, with 11 per cent more surveyors reporting an increase than a fall, up from 5 per cent in quarter one, although it fell for the third quarter in a row in London.

Graham Chase, RICS commercial market spokesman, said:

We are now seeing clear evidence of a change in activity within the UK economy. This change has led to decreasing demand for commercial property. However, there is an element of correction going on here as the extent of demand in the recent past was unsustainable.

With little speculative development, there is unlikely to be any significant oversupply of commercial property, despite reduced demand. This reduces the likelihood of widespread vacancies.