The availability of office space in the UK has declined for the sixth consecutive quarter and is doing so at its fastest pace since the late 1990s, according to the latest Commercial Market Survey by the Royal Institute of Chartered Surveyors.
The rise in transactions of commercial properties being sold with Permitted Development Rights (PDR) appears to be compounding the lack of availability, with two-thirds of respondents to RICS’ survey for the third quarter suggesting that, if PDR exemptions were not extended, availability of commercial properties would be impacted further.
In London, 20% of respondents said PDR transactions had led to more than 10% of available commercial properties being earmarked for conversion into residential use.
A net balance of 51% of surveyors reported a rise in demand for office, industrial and retail space.
Across the whole of the UK, 32% more surveyors said availability across office, retail and industrial properties had fallen, while demand had risen to a net balance of 44%.
Demand for industrial property grew on the previous quarter (from a net balance of 49% in Q2 to 56% in Q3), and surveyors in London also saw a large rise in prospective overseas investors in the industrial sector (73%).
The picture across the UK appears increasingly upbeat, with the firmer tone spreading beyond the capital as the economic expansion gains greater traction.
RICS said this was reflected in rental expectations – now in positive territory in all parts of the country in the office and industrial sectors.
Retail remains something of a laggard with a flatter rental trend away from the more dynamic parts of the market.
For the next 12 months, a net balance of 71% of surveyors forecast an increase in rent levels in London across all segments of the market, compared with 36% in the North of England.
Simon Rubinsohn, RICS chief economist, said the results provided further evidence the UK’s economic expansion was becoming more broadly based, with tenant demand for space “picking up in all parts of the country” and the “need for landlords to provide inducements diminishing”.
“There are also now clear signs investors are casting their nets wider in a bid to find better value in the market following the steep drop in yields on prime property in the capital,” he said.
“While permitted development rights are helping in a small way to boost much-needed housing supply, the latest survey suggests it is also having the unintended consequence of contributing towards a shortfall of office space in some parts of the country.
“Feedback from members suggests this is particularly marked in London and adding to the upward pressure on rents. Moreover, there is a belief this problem will become more pronounced if existing exemptions are removed.”