Tenant demand fell at a faster pace in the developed world in the second quarter of the year but developing markets have also been hit by the credit crunch, according to the RICS.

In its Global Commercial Property Survey Q2 2008, a quarterly guide to the developing trends in the commercial property investment and occupier market published today, it said that transaction volumes and capital values plummeted across the board under financial liquidity constraints.

It said 17% more surveyors reported a fall than a rise in tenant demand across the globe as the effect of the credit crunch deepened. The worst hit areas were North America, Australasia, western Europe and, to a lesser degree developed Asia.

In Western Europe, the net balance of surveyors reporting a fall in tenant demand fell to -27% from -22% in the first quarter, while in Australasia and North America it fell to -35.5% and -36% respectively.

All sectors suffered with the retail market the most depressed area and the office sector dropping to a further low. It said capital values have fallen and yields have rise across most global markets.

The RICS said a rise in yields has also been recorded in emerging markets for the first time in the survey’s history as aggressive inflation fighting in some locations has impacted upon commercial property pricing.

It said investment activity continued its ‘downward spiral with all regions outside Latin America either stagnating or declining’ with the weakest investment markets in North America, Australasia and Western Europe.

‘Indeed, of the more than 50 countries surveyed, seven of the 10 worst performing countries are located in Western Europe with the most negative sentiment towards prices for the third quarter expected in the Republic of Ireland and Spain,’ it said.

Outside Western Europe, real estate companies surveyed in the report displayed the most negative sentiment towards Hungary, New Zealand and South Africa with the US positioned only one place above the bottom 10.

RICS senior economist Oliver Gilmartin said: ‘The pace of upward yield shift gathered momentum across many markets in the second quarter as renewed fears over a prolonged economic slowdown has raised risk premiums and the real possibility of increasing tenant default.

‘The outlook for rents has been pared back across many markets as well as some emerging markets where the battle against inflation has taken centre stage.

‘Significantly, inducements are on the rise in every global region outside of Latin America a trend which has historically provided a lead indicator for slowing rental advance. Markets exposed to the housing and consumer slowdowns are unsurprisingly displaying the weakest sentiment on downgrades to economic growth with the retail sector the least favoured in every region outside Emerging Asia and Africa & Middle East.’