Tenant demand for commercial property is waning, which could lead to a slowdown in rental growth, according to an RICS report released today.

The latest quarterly RICS Commercial Property Survey says that uncertainty in the credit market has led to waning sentiment amongst investors and occupiers.

Weak retail

The survey, which gauges activity reported by chartered surveyors, shows widespread pessimism amongst the profession, with 1% more surveyors reporting a fall rather than a rise in tenant demand, the first time the balance has been negative in more than two years. The report said a weak retail sector was the driving factor behind the fall, although office demand was also down.

The investment market also suffered according to the report, with 29% more surveyors reporting a fall rather than rise in office investment demand. This sector also saw a huge change in the amount of surveyors reporting a fall rather than a rise in capital values, 17% compared to 36% reporting a rise in the second quarter.


Looking forward, surveyors became the most pessimistic for over four years. A balance of 8% more chartered surveyors expect market activity to ease in the coming quarter down from 14% expecting rising activity in the second quarter.

Simon Rubinsohn, RICS chief economist, said: ‘The turmoil in the credit market is being most acutely felt in commercial property as the sector is more dependent on capital market funding than in the past. Business expansion has been put on hold in the short term with the near term outlook for rents weaker as a result.

‘Fears of the impact of the credit crunch have made investors retreat to the margins as confidence in returns diminishes. Sentiment in the market is at the lowest point in four years and is unlikely to improve in the short term.’