Office property lettings leading the way for UK commercial sector

Confidence is growing in the UK commercial property market with the pace of decline in tenant demand easing considerably, according to the latest quarterly report from the Chartered Institute of Surveyors.

It's Commerical Property Survey for the second quarter of 2009 shows a 'mild' improvement in the lettings market, particularly the office sector where the net balance has turned positive for the first time since the third quarter of 2007.

Some 13% more chartered surveyors reported a fall than a rise in tenant demand compared with 40% in the first quarter of the year. In the office sector, one percent more surveyors reported a rise than a fall in tenant demand, up from a negative reading of 37% in the first three months of 2009.

However, new enquiries to occupy business space were relatively flat although the net balances for office and industrial space turned positive for the first time since the downturn got underway. Enquiries for retail space remain depressed with the Central London market the weakest performer.

The report also shows that the net balance of surveyors reporting a rise in available floor space rose at a lesser pace having picked up at a record clip in the previous quarter. Rising available space continued to be reported across all regions with the exception of the London industrial market where available space was largely unchanged.

'Whilst tenant demand in some areas improved modestly compared to the first quarter, the positive move was from extremely low levels. It is still unclear whether current activity reflects ongoing rationalisation of space or 'fresh' tenant demand. Furthermore, the rental downturn remains in its infancy with strong levels of surveyor inducements pointing to a challenging lettings market,' explained Oliver Gilmartin, RICS senior economist.

Unemployment will be the major influencing factor in this section of the property market in the next year, he said. 'Should the labour market stabilise during 2010 then downward pressure on capital values will start to ease,' he added.