Tenant demand for commercial property was pulled down by a weak retail sector in the third quarter as investors shunned the market, according to the RICS Commercial Property Survey for the third quarter of 2007. For the first time in over two years there were more chartered surveyors reporting a fall than a rise in demand., the survey found.
Tenant demand for commercial property was pulled down by a weak retail sector in the third quarter as investors shunned the market, according to the RICS Commercial Property Survey for the third quarter of 2007. For the first time in over two years there were more chartered surveyors reporting a fall than a rise in demand., the survey found.
A weak retail sector has been the main factor dragging down demand, although office demand has also weakened, RICS notes. The credit market turmoil has had a negative impact on investment in commercial property assets with capital values declining across the board. Surveyors reported the biggest declines in investor demand within the office sector as the recent financial sector turmoil has seen investors re-price risk. More chartered surveyors (+29.1%) 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 the second quarter.
Surveyors were more pessimistic about the future than they have been for over four years. A balance of 8% more chartered surveyors expect market activity to ease in the coming quarter compared with 14% expecting rising activity in the second quarter. The negative sentiment was mostly driven by the retail sector where confidence fell to the lowest level since the first quarter of 2003. Confidence in rental expectations halved in the third quarter but still remains positive outside the retail sector.
Simon Rubinsohn, RICS chief economist, said: 'The turmoil in the credit market is being felt most acutely 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.'
The Royal Institution of Chartered Surveyors (RICS) covers all aspects of property, construction and associated environmental issues. It has 130,000 members worldwide and represents, regulates and promotes the work of property professionals throughout 121 countries.
