The third quarter 2002 has seen further falls in business demand for commercial property, says a RICS survey out last week. However, this has been accompanied by an upturn in confidence, reflecting other positive economic indicators.
Since the start of the year consumer spending and consumer confidence have remained up. This has benefited the retail sector, which has performed well during the third quarter and partially offset falls in other areas.
Low interest rates and increases in consumer and public spending all bolster business confidence, with the economy showing a return to modest economic growth by the middle of the year. But Septemberâ€™s stock market sell-offs and uncertainty over a possible war in Iraq could weaken occupier activity again.
Available space rose for the sixth consecutive quarter across all sectors. As a result the third quarter has seen a decline in lease lengths and a rise in incentives on offer to tenants. Rental expectations have also been adjusted downwards, although this is mainly due to the poor performance of the London office market which has dragged the figures down. Many areas outside London and the south east have been largely unaffected by failures of dot com companies and contraction of the financial services sector.
Overall 14% more chartered surveyors reported a fall in activity than reported a rise, similar to the 12% of the last quarter. By contrast, investment demand for commercial property has been very strong as investors have sought refuge from a plunging stock market.
RICS chief executive, Louis Armstrong, said:
â€˜The commercial property sector is certainly a mixed-bag at the moment. Firms are obviously unlikely to expand during periods of economic and political uncertainty and yet, outside London and the South East, it is very much a case of business as usual. Stock market falls discourage growth but sustained levels of consumer spending and confidence are supporting businesses.
â€˜With the FTSE 100 down 21% since the start of the year, activity in commercial property investment has been very strong. Investors are looking for profitable alternatives to equities and the relatively high yields in the property sector are proving attractive.â€™