Shortage of stock driving commercial property rents ever higher, say RICS

A shortage of available commercial rental property is driving rents ever higher according to the Royal Institute of Chartered Surveyors (RICS).

81% of central London respondents to RICS quarterly commercial property market survey for the last quarter of 2015 now believe the market is overpriced.

The survey revealed that with businesses across the UK doing well and with employment data still strong, the industrial sector has the greatest momentum in occupier demand.

43% more chartered surveyors are seeing a rise in demand for industrial space in Q4 2015, compared to 29% more seeing a rise rather than fall in demand for offices and 26% more seeing a rise in demand for retail.

But as demand has increased, supply has continued to decrease across the UK with the survey recording the eleventh consecutive quarterly drop in available space across the commercial property market. Development nationally has only increased marginally with anecdotal evidence suggesting that there is a lack of commercial construction activity in many locations.

However Simon Rubinsohn, Chief Economist at RICS, remains upbeat.

Simon Rubinsohn said: “For the time being the real estate sector seems largely insulated from the turmoil affecting financial markets. Indeed, the prospect of a ‘low for longer’ interest rate environment provides further comfort for those parts of the property market where values are looking a little stretched and arguably more vulnerable to a material shift in monetary policy.

“One potential consequence of the current climate is that the trend in foreign investment could slow which is a pattern the latest RICS survey seems to be picking up. However, with the economy still set to post growth in excess of 2% in 2016 the backdrop for the occupier market appears reasonably well underpinned.”

Andrew Lloyd, Managing Director of Search Acumen, said: “Q4 results from the RICS survey substantiate our view that the commercial property market will show resilience in the face of the predicted slowdown in emerging markets in 2016.

“The demand and push for greater commercial activity remains strong, with Lloyds having made the biggest commercial property loan since the recession at the beginning of January 2016. British companies are also optimistic and expect more commercial activity to increase over the next year.

“However, supply remains a key issue: the capital is facing more rent increases in 2016 with office vacancy rates hitting a 15-year low and new investor favourites like Cardiff, require a lot more high quality office space than is currently in the pipeline; its grade A space already expected to be fully let by early 2016.

“A steady stream of deals is likely to keep commercial property lawyers busy in early 2016. Sorting out the backend to be as efficient as possible, however, could differentiate the haves from the have-nots for the rest of the year.”

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