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Gloomy outlook for UK commerical property sector despite increase in incentives

Surveyors, however, expect rental declines to accelerate on the back of a record increase in available floor space, concludes the Commercial Property Survey from the Royal Institution of Chartered Surveyors.

The net balance of surveyors reporting a rise in available floor space rose at the fastest pace in the survey's history with 65% more Chartered Surveyors reported a rise than a fall in available floor space, up from 57% in the last quarter.

The ongoing contraction in the economy and the continuing rise in available floor space have weighed on surveyor expectations for the rental outlook, the report says.

Surveyors are now more pessimistic than ever before with 80% expecting a fall in rents. The value of inducements, regarded as an indicator of future rental trends, rose at the fastest pace in the survey's history as landlords continued to try to boost demand with incentives.

All commercial property sectors remain firmly in negative territory for the sixth consecutive quarter but the pace of decline is slowing and this trend offers some hope that the dramatic easing in monetary policy and fiscal stimulus measures are providing some support to the commercial property market by lifting business confidence.

'The reality is that fundamentals in the occupier market continue to deteriorate as companies remain in consolidation mode. Landlords are ramping up inducements as they attempt to secure a letting with sharply rising available space exerting greater downward pressure on rents,' said Oliver Gilmartin, RICS senior economist.

'The investment market continues to see declines in transaction activity although at the slowest pace since the onset of the downturn. Whilst it is still too soon to point to an end in price falls, deal activity should be picking up by the end of the year as those with deep pockets move in,' he added.

He also hit out at the government for not helping the sector in the recent Budget. 'Given the gloomy backdrop for the sector and expectation of further rises in vacant space, RICS is disappointed that the government failed to address the issue of empty property rates in the recent budget. This is encouraging the demolition of perfectly good buildings, discouraging speculative development and could result in more far reaching problems when the economy starts to pick-up again,' Gilmartin warned.