Rental declines expected to gather pace: RICS

Tenant demand across all sectors continued to fall in the first quarter according to RICS' UK Commercial Property Survey published this week.

The net balance of surveyors reported a rise in available floor space at the fastest pace in the survey's history. Some 65% chartered surveyors reported a rise rather than a fall in available floor space, up from 57% in the last quarter. The ongoing contraction of the economy and the continuing rise in available floor space have weighed on surveyor expectations for the rental outlook. Surveyors are now more pessimistic than ever before with 80% of surveyors expecting a fall rather than a rise in rents. The value of inducements (a lead indicator of future rental trends) rose at the fastest pace in the survey’s history as landlords continued to try to boost demand with incentives.

Some 40% more chartered surveyors reported a fall rather than a rise in occupier demand compared to 71% in Q4 2008. All sectors remain firmly in negative territory for the sixth consecutive quarter, but the pace of decline moderated from record lows. This improvement offers some hope that the dramatic easing in monetary policy and fiscal stimulus measures are providing some support to the commercial property market by lifting business confidence, RICS said.

The immediate outlook for lettings activity remains poor with the net balance of surveyors reporting new occupier enquiries remained in negative territory. However, 38% more chartered surveyors reported a fall rather than a rise in new enquires for business space compared to 63% in the last quarter - the least negative reading in a year. The improving enquiry trend was most pronounced in the south of the country.