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Tenant demand falls for first time in four quarters

20 July 2010

Investor and occupier demand fall back on budget uncertainty with tenant demand down for first time in four quarters, most notably in London, according to latest RICS UK Commercial Property Survey

Demand fell in the commercial property sector with seven percent more chartered surveyors reporting a fall than a rise in tenant demand in the second quarter, down from a positive six percent, the first negative reading since the first quarter of 2009.

Tenant demand for offices declined across all regions with London seeing the biggest fall in sentiment. 38 percent more chartered surveyors reported a fall than a rise in office demand from a positive 32 percent in Q1.

Surveyors report that uncertainty over cuts in the budget have weighed on investment decisions. Demand in the retail and industrial markets also fell across most regions although the north is bucking the trend. Demand for both retail and industrial property remains strong in the North.

More survey respondents reported a fall than a rise in enquiries, with the net balance falling to -10 from +7 in Q1. Consequently, confidence in the outlook for lettings has also fallen for first time since Q2 2009, with the balance at -7.

Confidence towards future lettings of office and industrial property in the capital fell to -19 and - 31 respectively. While confidence towards retail lettings remained subdued overall, in Central and Greater London, surveyor confidence improved from -58 to -7.

The availability of space for occupation picked up, driven by increasing space in the North and Midlands regions. Available space increased at slower pace in the South, while it broadly stabilised across all sectors in London.

Commenting, Oliver Gilmartin, RICS senior economist said:

“Surveyors have indicated that uncertainty as to the detail of budget cuts are weighing on firms' investment decisions with respect to their property requirements. As a result, the rental recovery is stalling in its tracks on waning demand. It seems difficult however to reconcile the turnaround in the London market purely on domestic concerns.

“Indeed, falling stock markets, worries over both the Euro zone debt crisis and the sustainability of the recovery appear to be weighing on occupational demand from large multinational occupiers.

“Investment demand has also fallen back for the first time in a year with some indication that prices are declining again outside the Central London office and retail sectors.”

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