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TENENT DEMAND WEAKENS ACROSS ALL SECTORS, BUT INCREASES IN THE SOUTH WEST

RICS COMMERCIAL PROPERTY SURVEY Q4 2007

Tenant demand for commercial property fell to 2003 levels, says RICS‘ Commercial Property Survey published today (30 January 2008).

Surveyors reported that business demand for commercial property fell in the fourth quarter of 2007. 12 percent more Chartered Surveyors reported a fall than a rise in demand compared to 2 percent in Q3. All sectors reported a fall for the first time since Q1 2003 when the net balance was -20.  The number of surveyors reporting a decline in office demand moved into negative territory for the first time in over four years while the retail sector saw the biggest declines of all sectors, even surpassing the falls recorded in 2005 when the economy was slowing more appreciably. In fact, demand in the retail sector fell at the fastest pace in six years as a slowing housing market and the recent credit turmoil began to weigh upon both retailer and consumer confidence.  

New buyer enquiries also fell across all three sectors having previously held firm against credit market jitters. The retail sector witnessed the sharpest decline in enquiry levels with the greatest declines in Central London and Wales. As with demand, the number of surveyors reporting a fall in enquiries fell to the worst level since Q1 2003.

Looking forward, surveyors continued to be pessimistic as a bleaker outlook was anticipated across all sectors. Surveyor confidence in the office sector turned negative for the first time since 2003, while in the retail sector, confidence dipped to its lowest point in 6 years. Rental expectations turned negative for the first time in over four years with surveyor optimism dented across all sectors.

The credit market turmoil continued to have a negative impact on investment into commercial property assets with capital values declining across all areas. Surveyors reported declines in capital values within the office sector dropping from -17.3 to -47.8 percent.  Recent financial turmoil has seen investors re-price risk.  In the retail market the capital values fell from -20 percent to -48 percent.

South West Office Market

In the South West surveyor confidence in the office market fell with 19 percent more Chartered Surveyors reporting a fall than a rise.  Demand increased with 8 percent more reporting a rise.  Rent expectations also fell to 19 percent more reporting a fall, down from 4 percent reporting a fall.

South West Retail Market

Demand in the retail market increased slightly with 13 percent more Chartered Surveyors reporting a rise than a fall, from 36 percent more reporting a fall last quarter.  21 percent more Chartered Surveyors reported a fall in confidence.  Available floorspace picked up with 33 percent more reporting a rise.

South West Industrial Market

An increase in demand was reported in the South West with 16 percent more Chartered Surveyors reporting a rise than a fall, up from 4 percent more reporting a fall.  Surveyor confidence fell with 24 percent more reporting a fall than a rise, down from 4 percent more reporting a fall.

Chartered Surveyors from across the South West reported on their specific area:

Alistair Edgcumbe of Larkman Edgcumbe Ltd in Exeter said: “Princess Hay opening has rejuvenated the City‘s retail appeal and pulled shoppers from further afield.”

Commenting on the Taunton market Mr Edgcumbe said: “Agency enquiries remain reasonably stable, but we anticipate a quiet start to the New Year.  Retailers are watching their tills.”

Also commenting on the Yeovil market Mr Edgcumbe said: “Yeovil remains strong in a difficult market.”

Mr Edwards of Dreweatt Neate in Wiltshire said: “Demand for particularly Retail and Industrial property has been encouragingly buoyant over the past three months, with many small businesses looking to move to premises which offer flexible occupancy terms.”

Peter Foyle of Bruton Knowles in Gloucester said: “Demand for industrial property from occupiers remains buoyant both for leasing or to purchase.”

Andrew Hosking of Stratton Creber Commercial in Barnstaple said: “Barnstaple remains a successful centre across all commercial property sectors.”

Commenting on the Exeter market Mr Hosking said: “For the first time in a number of years freehold demand in Exeter has reduced over the last quarter.”

Peter Luff of Edward Symons & Partners in Plymouth said: “Due to the lack of speculative development in recent years there is still rental pressure in certain (but not all) sectors.”

Mr Nightingale of Miller Commercial in Truro said: “The market in Truro remains active.  There is continued growth in the office and industrial markets with strong interest being generated in new development completions.  Premiums are still being obtained in the Retail sector.”

John Plimmer of Humberts Commercial in Taunton said: “Still relatively busy in all sectors but investment market slowing quickly.  Difficult to judge overall market due to usual pre-Christmas slow down.  Next year will be the real test.”

Simon Pontifex of SPA Chartered Surveyors in Cheltenham said: “Applicant demand for office and retail space has increased over the last quarter.  The latter matching an increased supply of retail space.  Good secondary have maintained their popularity and rents are rising.”

Andrew Rowley of Alder King in Gloucester said: “The demand from occupiers continues to be good although there is a drift toward leasehold occupation.  There is currently little investment activity.”

Commenting, Simon Rubinsohn, RICS chief economist said:

“Pessimism regarding the near term economic outlook has started to make serious dents in market sentiment as surveyors start to see the previously strong office sector join the retail market in decline. While finance remains scarce, commercial property‘s continued reliance on capital funding could see the market dip further.”

ENDS             31st January 2008

For further information please contact Violet Ridge, Sturgess Van Damme, on 01275 349011 or email violet@sturgessvandamme.co.uk

About RICS

RICS (Royal Institution of Chartered Surveyors) is the mark of property professionalism worldwide. It covers all aspects of property, construction and associated environmental issues. RICS has 140,000 members globally and represents, regulates and promotes the work of property professionals throughout 146 countries. RICS is governed by a Royal Charter approved by Parliament which requires it to act in the public interest. It is also a professional regulatory body approved by Government (HM Treasury).

Notes for Editors:

RICS Market Surveys