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Offices are standing empty across the country as the bleak economic outlook forces firms to put plans for expansion on hold.
Demand for commercial property is declining across the board – but offices are seeing the biggest falls.
Commercial letting agents say call for office space suffered worst in the last quarter, ending September 30, with 23% reporting more availability, according to the latest commercial survey by the Royal Institute of Chartered Surveyors (RICS).
In contrast, empty retail space decreased in the South West and South East for the first time since 2005, signalling an improvement in the retail market – but retail development in London remains weak.
Surveyors’ expectations for increased supply and weaker demand impacted on their outlook for rental growth, with 16% more anticipating rents falling rather than rising over the next three months.
Investment purchases in property also declined over the past three months, with 12% more surveyors reporting a fall than rise in purchases of commercial real estate.
Demand for office and industrial real estate saw capital values fall back for the second consecutive quarter, with only London seeing rises in values.
Expectations for Central London office rents stabilised after increasing in the last quarter, while industrial rents in the capital also broadly stabilised.
Outside the capital, rental expectations dropped across the office, retail and industrial sectors.
Office development starts in Central London increased for the first time since the credit crisis.
Across the rest of England and Wales, starts continue to decline in all other sectors and regions.
Simon Rubinsohn, RICS chief economist said: “We are seeing a mixed picture for the commercial property sector across England and Wales. The year started positively, but worries over the impact of spending cuts and the sustainability of the economic recovery appear to be creating an air of caution, which is impacting on the commercial property sector.
“Nevertheless, providing the private sector does begin to fill left by a smaller state and the inflation picture does not justify a sharp uplift in interest rates, the likelihood is that the commercial property market will avoid a meaningful relapse into recession.”
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