Findings Of The RICS Commercial Property Survey Q4 2008
According to the latest RICS’ Commercial Property Survey published today (9 February 2009) activity across most commercial market sectors in the East of England cooled further in the fourth quarter of 2008 with many headline indicators falling to new lows.
Across England and Wales 71 per cent more of those Chartered Surveyors polled reported a fall than a rise in occupier demand this quarter (Q4). This is compared to 53 per cent of those surveyed in Q3 2008. The office sector has been one of the worst hit in the East of England. All of the Chartered Surveyors polled – 100 percent - reported a fall rather than a rise in occupier demand this quarter (Q4) compared to 41 per cent in Q3 2008.
All sectors, including office, retail and industrial, remain firmly in negative territory for the fifth consecutive quarter and have reached their lowest respective balances in the survey’s 11 year history.
Demand for retail space in the East of England, as across much of the UK, continues to decrease with 83 per cent more Chartered Surveyors reporting a fall than a rise in retail demand, compared to 33 per cent in Q3. The region’s industrial sector is almost as depressed with a balance of 78 per cent of those surveyed reporting a fall rather than a rise in occupier demand, compared to last quarter’s 45 per cent.Declines in the rate of new development completions have failed to halt a further loosening in supply side conditions where all three sectors reported available space to be rising. In the East of England 83 per cent more Chartered Surveyors reported a rise than a fall in available floor space in the retail sector compared to just 33 per cent in Q3. In the office and industrial sectors it was a similar story. A balance of 57 per cent of Chartered Surveyors registered a rise in available office floor space compared to 23 per cent in Q3 and 78 per cent reported an increase in industrial space in Q4, compared to 23 per cent during the previous quarter.
Bargaining power is increasingly shifting towards tenants who are looking to exercise shorter leases and earlier break clauses given the wider economic uncertainty. The value of inducements (a lead indicator of rents) nationally rose at the fastest pace in the survey’s history as landlords tried to counter falling demand by offering increased incentives packages. In the East of England a balance of 83 per cent of Chartered Surveyors reported a rise in inducements in the retail sector during Q4 compared to 50 per cent in Q3 and all – 100 percent – agreed there had been a rise in the office sector in Q4. The industrial sector also saw a significant rise in reported inducements with a balance of 89% of Chartered Surveyors reporting a rise against 55% in Q3.
Despite recent government initiatives, the immediate outlook for lettings activity remains poor as the net balance of surveyors reporting new occupier enquiries in Q4 declined to yet another record low. Across England and Wales 62 per cent more Chartered Surveyors reported a fall than a rise in new enquiries for commercial space compared to 55 per cent in Q3. In the East of England the retail and office sectors saw a steep decline in interest with all – 100 percent - Chartered Surveyors reporting a fall rather than a rise in enquiries to occupy retail and office space, compared to 50 per cent and 41 percent (respectively) in Q3.
In the investment market, capital values fell at the fastest pace to date. However there are some tentative signs that transaction activity may be due to bottom, albeit at subdued levels, with less surveyors reporting declines in purchasing activity, particularly in the office sector.
David Potter, RICS East operations director, said: “Concerns as to the depth and duration of the current downturn are being reflected in the commercial property market where investment has been dramatically scaled back.
“New Government packages such as loan guarantee schemes and the separation out of toxic assets are welcome developments for corporate occupiers and investors into commercial property, although will not prevent a further near term weakening in rental prospects on rising space. “The collapse of sterling and improved valuation metrics compared to continental Europe could encourage some investment interest as the year progresses. There is already real evidence of this with an increasing number of opportunity funds being set up.”