Demand for retail property has fallen, according to a commercial property report from RICS that highlights dented confidence among tenants. Photograph: Christopher Furlong/Getty Images
The commercial property market seemed to be weathering this year’s economic storm. Until now, that is.
The Royal Institution of Chartered Surveyors reports that after a pick up in the first half of this year, demand for commercial property is now faltering as potential tenants worry about the domestic and European economic outlook. Not for the first time in recent weeks, retailers stand out as particularly under pressure while there is worrying news on employment prospects with landlords expecting office rents to be squeezed.
The group’s UK Commercial Market Survey indicates that in the third quarter occupier demand fell back for the first time in 12 months.
The report adds that worries about the economic outlook are even hurting demand in the capital, a market that had typically outperformed the rest of the country by some margin.
Demand in London’s commercial property market, which had looked much stronger, failed to increase.
The report brings more gloom for the retail sector – echoing surveys showing slumping consumer confidence and profit warnings from a slew of high street names. Underlining worries that retailers are bearing the brunt of the downturn, RICS said surveyors reported available space picked up fastest in the retail sector. The retail sector also saw the largest drop in demand for space.
Falling demand and rising availability hit rental expectations, which weakened over the quarter. Respondents to RICS survey were least optimistic for office rents.
Simon Rubinsohn, RICS chief economist said worries about prospects for the UK economy and the sovereign debt crisis in Europe were likely to continue to weigh on sentiment.
Confidence is clearly critical for the whole of the real estate sector and in the near term there is little reason to believe that it is likely to improve. Against this background, any recovery in rents is likely to prove elusive and capital values away from London look set to remain under pressure.