RICS commercial property survey, fourth quarter 2001

Citation

(2002), "RICS commercial property survey, fourth quarter 2001", Property Management, Vol. 20 No. 2. https://doi.org/10.1108/pm.2002.11320bab.002

RICS commercial property survey, fourth quarter 2001

RICS commercial property survey, fourth quarter 2001

Landlords are dramatically increasing the value of financial incentives, such as rent free periods and contributions to fit out costs, to encourage firms to take on new leases. This follows the third successive quarterly fall in business occupation, says an RICS report published in January 2002.

The 5 per cent of chartered surveyors throughout England and Wales reporting a rise in occupation of property through new lettings or sales was dwarfed by the 43 per cent reporting a fall. This negative balance of 38 per cent is indicative of increased business uncertainty and a clampdown on corporate investment. Confidence is shown against wider business investment spending in Figure 2.

The office market saw 52 per cent more surveyors reporting a rise than a fall (compared to 41 per cent in quarter three) as firms put expansion on hold, especially in sectors that had led to the preceding upturn, such as financial services, IT and telecoms. London experienced a large decline while the North held up best.

Industrial property occupation levels saw 41 per cent more chartered surveyors reporting a fall in demand than a rise with the first rise in inducements reported since the survey began. Retail demand fell less than other sectors. However, following on from figures for December showing the first monthly fall in retail sales since April 2000, the survey indicates that retailers remain cautious on the outlook. One sector where property demand has stabilised is for out of town warehouses, benefiting from a boom in consumer spending on durable goods like TVs, DVDs and fridges.

Surveyor optimism is at a seven year low, with a rapid turnaround in demand unlikely as companies work off excessive investment. New building development was also hit, with 11 per cent more chartered surveyors reporting a fall than a rise as expectations for commercial rental increases are reassessed. Here, sentiment is again weakest in London.

The only index rising in the survey (other than incentives) is the amount of empty floorspace available, especially in the capital. This phenomenon was seen as a symbol of the bad old days of boom and bust in the early 1990s and, although the economy is at a different stage now, 45 per cent more surveyors reported a rise in available floorspace than reported a fall, up from 20 per cent in quarter three.

Graham Chase, chairman of the RICS commercial property faculty, said:

The well documented falls in confidence in UK business, ongoing profit warnings and nervous worldwide stock markets continue to set the tone. Not surprisingly, demand for business space continues to decline with both landlords and tenants taking appropriate action to protect their downside. For tenants this means reducing property overheads and dumping surplus space, and for landlords it means incentivising potential occupiers to maintain income streams.

However, the fundamental nature of the market appears to be very different to the difficulties experienced in the early 1990s following the late 1980s boom. There has not been an explosion of new development space, so oversupply will not be such a feature and consumer expenditure remains buoyant. Furthermore, low levels of interest rates have helped to maintain property values. Consequently bricks and mortar has been a safe haven against the volatility and limited returns of other investment classes. Nevertheless the health and strength of the occupier is ultimately the most important element of any property, and in this respect the commercial market has a difficult time ahead in certain sectors, particularly central London and Thames valley offices.

Figure 2. Falling surveyor confidence points to further declines in overall business investment spending