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Outlook for commerical property weakens

Expectations for commercial property rents fell in the last quarter of 2011, according to the Royal Institute of Chartered Surveyors.

Rising availability and falling demand was to blame as even the previously buoyant London market fell into negative territory in the three months to December 31, according to the UK commercial Property Survey.

Overall tenant demand also continued to fall nationally, with 13 per cent more surveyors reporting decreases rather than increases in interest from prospective occupiers.

In the capital, there were 19 per cent more surveyors reporting decreases, compared with +5 per cent in the previous quarter.

The amount of available floorspace also ballooned over the past three months, with a net balance of +16% of surveyors reporting more availability. Retail and office space saw the most significant increases with net balances of +25 and +24 per cent of surveyors reporting increases, while industrial space broadly stabilized with a net balance +3.

However, the report suggests that rents are still projected to nudge up in the capital’s prime office sector.

Inducements continued to increase in the three months to December as landlords attempted to attract potential tenants. Some 25 per cent more respondents reported rises rather than falls in incentive packages, the highest reading since Q4 2009.

Surveyors report that in this difficult market, many would-be occupiers are requesting reductions in rent and higher inducements.

Simon Rubinsohn, RICS chief economist, said: “Rental expectations have predictably become a little more negative in the face of the recent run of grim economic news. While this seems to be the case across almost all of the UK the one area that continues to buck the trend is prime London offices.

“However even here our indicators suggest that demand for space is a little less strong than it was. Meanwhile, the on-going shortage of mortgage finance is set to dampen investment activity. Confidence is key to a sustained recovery in the sector and this is going to be hard to bolster until the key issues surrounding the European sovereign debt crisis are resolved.”

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