The demand for commercial property during the third quarter fell at the fastest pace in a decade, according to the RICS’ Commercial Property Survey published today.

It said that 52 % more surveyors reported a fall than a rise in demand compared to 50% during the second quarter. All sectors remain firmly in negative territory for the fourth consecutive quarter with the industrial and office sectors dropping to the lowest balance in the survey’s history.

Retail 'worst hit'
One of the worst hit areas continues to be the retail sector with 59% more surveyors reporting a fall than a rise in retail demand, a slight improvement from 63% during the first quarter. ‘The continuing financial turmoil and a slowing housing market is clearly weighing upon both retailer and consumer confidence,’ said the RICS.

New occupier demand fell at the fastest pace in the survey’s history during the third quarter with 54% more surveyors reporting a fall than a rise in new enquires for business space compared to 53% in Q2. The RICS said the financial uncertainty has impacted upon decision making in the business community with many re-evaluating their demand for commercial property space.

The supply side of the market is still loose with all three sectors ‘feeling the depressing effects of the continuing climate of financial uncertainty’. The amount of available floor space increased at the fastest pace in the survey’s history with the retail sector leading the way. 33% more surveyors reported a rise in available floor space compared to 27% in Q2.

Rents falling
The value of inducements rose at the fastest pace in the survey’s history, which the RICS said is a lead indicator of falling rents, as landlords tried to counter falling demand with incentives.

‘In fact, confidence towards the rental outlook fell to the lowest level since the survey began in 1998 with the greatest pessimism in Central London. Meanwhile, confidence in activity is close to record lows and going into the Christmas trading period the retail sector is expected to be the worst performer,’ said the RICS.

Oliver Gilmartin, RICS senior economist said: ‘The ongoing drag from the credit crunch is permeating through rental sentiment across all regions and sectors, especially in the Central London Office market where recent worry over the health of the hedge fund industry is only adding to the sense of pessimism. The intensification in credit strains following the collapse of Lehman brothers will undoubtedly further dampen investment and occupier demand heading into the fourth quarter.

‘The opening of the Westfield shopping centre in Shepherd’s Bush arrives at a time when retailers are bracing themselves for what could be a torrid Christmas trading period, with retail lettings activity expected to suffer in the coming quarter.’