UK commercial property markets showing modest improvement, according to surveyors

There is cautious optimism for the commercial property market in the UK as the sector shows further modest improvement although there are regional differences in both the occupier and investment areas, according to a survey published today (Tuesday February 15).

Some 18% more surveyors expected new sales and lettings to increase in the next three months, the latest Commercial Property Market Survey from the Royal Institution of Chartered Surveyors covering the fourth quarter of 2010 shows. It was a rise from the third quarter of +8 and is the best reading since before the onset of the credit crunch in 2007.

Meanwhile, 8% more reported a rise than fall in occupier enquiries, compared with -22 previously, suggesting that some businesses may now be looking to expand, the report says.

It points out that significantly, in the last three months of 2010, overall tenant demand for commercial property stabilised with a net balance of zero from -6. However, while the picture clearly is improving, surveyors continue to cite uncertainty over the prospects for the economy as a drag on the market.

Just 4% more surveyors saw an increase rather than a decrease in available occupier space, down from a reading of +16 in the third quarter. In the office sector, available space registered a zero net balance, the lowest since the fourth quarter of 2007. However, available space continued to edge up in both the industrial and retail segments of the market, albeit at a lesser rate, +5 and +4 respectively. Regionally, London experienced a sharp fall in supply of office space, while industrial property in the South and South East saw declines for the first time in three years.

With occupier demand broadly stabilising but available supply still nudging upwards, it is not a surprise that the headline net balance for rental expectations remained in negative territory in the fourth quarter, the report says. However, the overall reading for the office sector was slightly positive and it was particularly so in London. The net balance for rental expectations in central London climbed to +50 while across the rest of the capital, it jumped to +34.

Meanwhile, rental expectations fell back at the fastest pace in the South, and continued to decline across regional office and retail markets. The outlook for industrial rents remains relatively stable, however, and even improved in London and the South East, in part to the stronger manufacturing sector.

On the investment side, the survey shows respondents in London seeing capital values rising with the net balance increasing for the sixth successive quarter. By way of contrast the readings for the rest of the South, Midlands and North remain negative.

‘While it is true that some optimism is returning to the real estate world, the commercial market still faces significant challenges. Regional variations are becoming increasingly visible with the picture on rents and capital values broadly reflecting the emerging economic recovery,’ said Simon Rubinsohn, RICS chief economist.

'Prime London offices are, and will continue to be, the most buoyant part of the market. Meanwhile, secondary offices around the country are a particular area of concern as oversupply will be compounded by likely consolidation in the public sector. On top of this, the general lack of new projects being initiated outside of the capital has important ramifications for regeneration in large parts of the country,’ he added.