LONDON-Occupier demand for commercial property has fallen for the first time in two and a half years, a new survey of Royal Institution of Chartered Surveyors members has found.Over the second quarter of 2001, 16% more chartered surveyors reported a fall in new business occupation than a rise. This is a significant turnaround since the previous quarter, when there was a 7% positive balance in favour of rising demand. The downturn has hit the office and retail property sectors hardest.

The fall in office occupier demand is the first since 1998 when the Far Eastern economic crisis hit business confidence. Take-up was weakest in London but business parks have held up well, particularly in the north. The survey also found that rental growth has eased, and there is even a suggestion that lease durations may fall following two years of robust growth, as the pendulum swings back in favour of the tenant.

Against this uncertain backdrop, new office development continues to rise, with 11% more surveyors reporting an increase in development activity than a fall, up from 5% in quarter one. But there are signs of a slowdown in London. RICS’s commercial market spokesman Graham Chase says: ‘We are now seeing clear evidence of a change in activity within the UK economy. This change has led to decreasing demand for commercial property. However, there is an element of correction going on here as the extent of demand in the recent past was unsustainable. With little speculative development, there is unlikely to be any significant oversupply of commercial property, despite reduced demand. This reduces the likelihood of widespread vacancies.’

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