Activity across all sectors eased back in Q4 2008 with most headline indicators falling to new lows, according to the RICS Commercial Property Survey published today.
71% more chartered surveyors nationally reported a fall than a rise in occupier demand compared to 53% in Q3 2008. All sectors remain firmly in negative territory for the fifth consecutive quarter and have reached their lowest respective balances in the surveys history.
The worst hit area continues to be the retail sector with 79% more chartered surveyors reporting a fall than a rise in retail demand in the south west, down just slightly from 81% in Q3, and compared to 78% across the UK. Rising unemployment has further dampened the outlook for consumer spending through 2009 which has added to the sense of pessimism in the retail sector, where several high profile bankruptcies hit the headlines in the run up to Christmas.
Declines in the rate of new development completions have failed to halt the increase in available space across the UK as it increased at the fastest pace in the surveys history – with retail leading the way. Here in the south west, though, contrary to the national picture, there was no change in the number of Chartered Surveyors reporting a rise in available retail, although those reporting an increase in office space rose to 73, up 23% from 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. Meanwhile the value of inducements rose at the fastest pace in the surveys history (a lead rental indicator) as landlords tried to counter falling demand with incentives.
Despite recent government initiatives the immediate outlook for lettings activity remains subdued as the net balance of surveyors reporting new occupier enquiries in Q4 declined to yet another record low. Nationally 62% more Chartered Surveyors reported a fall than a rise in new enquires for business space compared to 55% in Q3.
In the investment market, capital values fell at the fastest pace to date, however, transaction activity may be bottoming albeit at subdued levels as less surveyors reported declines in purchasing activity, particularly in the office sector
James Gregory, partner at Alder King and RICS South West spokesperson, commented: “Broadly speaking the south west market reflects national trends but there are some parts of the region in which activity is a little stronger. This is partly linked to availability of quality developments at competitive prices and partly to location. For example, rental levels in places like Swindon and Taunton are lower than those in neighbouring towns such as Reading, Bristol and Exeter, which is attracting interest from organisations seeking good specifications with easy access to key conurbations.
“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 guarantees schemes and the separation out of toxic assets are welcome developments for both corporate occupiers and investors into commercial property but they 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”