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RICS Reports Static Demand for Commercial Property

Demand for commercial property remained static in the second quarter of the year, according to the RICS, after 18 months of "gradual improvement." But the slowdown, blamed on the slowing economy and increasing interest rates, masks a steadily improving office market and deteriorating retail and industrial markets.

The institution's quarterly commercial property survey reported rising occupier demand for offices, although below the pace of 2004, with London showing the greatest gains. The "modest rises" were attributed to "sustained expansion in the business and financial services activity".

Activity in the retail market was "negatively affected by a sharp slowdown in consumer spending growth, creating tougher trading conditions for retailers". This, together with "ongoing weakness in the manufacturing sector", was also blamed for the industrial slowdown.

Particularly weak performance in the West Midlands may have been the result of the collapse of MG Rover and the effect upon the company's suppliers. However, surveyors are still expecting rents to rise later in the year, perhaps as a result of lower interest rates stimulating the economy. Ongoing global economic growth will bolster office lettings.

RICS vice president Graham Chase said: "The divergent trend of a 'hot' property investment market and cooler tenant demand for premises has continued."

"Investment appetite for real estate is being fuelled by low interest rates and is drawing more and more from private individuals and institutional investors.

"But businesses are currently less inclined to take on new space, a clear signal that firms are more hesitant about expansion plans in the current economic climate."

He pointed to new data from RICS Global Property Survey which will be published in full in September which shows that prices for investment property continue to soar owing to historically low long-term interest rates.

But a shortage of buildings coming onto the market has meant that overall activity is not rising as quickly as in the latter half of 2004.

Source: Jon Neale EGi News - 26 July 2005


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