November 2007
Tenant demand for commercial property was
pulled down by a weak retail sector as surveyors watched
investors shun the market, says the new RICS’ Commercial
Property Survey.
Surveyors reported that business demand
for commercial property fell in the third quarter of 2007.
One
percent more chartered
surveyors reported a fall than a rise in demand compared
to 12% in Q2 who reported a rise – the first time that
the net balance has turned negative in over two years. A
weak retail sector has been the driving factor behind falls
in demand, although office demand has also moderated. New
enquiries have held firm indicating that expansion may be
on temporary hold until credit jitters subside.
The credit
market turmoil has had a negative impact on investment into
commercial property assets with capital values declining
across all sectors. Surveyors reported the biggest declines
in investor demand within the office sector as the recent
financial sector turmoil has seen investors re-price risk.
29.1% more chartered surveyors reported a fall than a rise
in investment demand in the office sector which also recorded
the biggest fall in prime capital values with the net balance
falling to -17.3% from +35.6% in Q2.
Looking forward, surveyors
became the most pessimistic for over four years. A balance
of 8% more chartered surveyors
expect market activity to ease in the coming quarter down
from 14% expecting rising activity in Q2. The negative sentiment
was mostly driven by the retail sector where confidence fell
to the lowest level since Q1 2003. Confidence in rental expectations
halved in Q3 but still remains positive outside of the retail
sector.
Commenting, Simon Rubinsohn, RICS chief
economist said: “The
turmoil in the credit market is being most acutely felt in
commercial property as the sector is more dependent on capital
market funding than in the past. Business expansion has been
put on hold in the short term with the near term outlook
for rents weaker as a result.
"Fears of the impact of the credit
crunch have made investors retreat to the margins as confidence
in returns diminishes.
Sentiment in the market is at the lowest point in four years
and is unlikely to improve in the short term."
< back to News
headlines
