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LONDON-The Royal Institution of Chartered Surveyors, in its latest economic bulletin, says that rental growth is slowing in all sectors of the commercial property market.

Retail rents grew at an annualised 1.1% over the last quarter according to Investment Property Databank, yet sales figures from the British Retail Consortium show that retail sales are up 6% year-on-year. ‘The resilience of personal consumption should not come as a surprise; consumer borrowing is at record levels, real earnings growth is historically strong and unemployment continues to fall,’ notes the bulletin. But it points out that this surge in activity has not been reflected in retail profits because of increased competition in the sector.

And office rental growth has seen a sharp slowdown, with the annualised rate of growth falling from 12.3% in November 2000 to just 3.4% in June 2001, according to IPD. The withdrawal of technology companies from the market has hit the Thames Valley and London hard, but the RICS points out that levels of take-up, although down on last year, are still running at historically high levels.

And in the industrial sector rents grew at an annualised 2.5% in the second quarter of 2001, down from 3.8% in the first quarter, reflecting the fact that the UK manufacturing sector officially entered recession during the second quarter.

Property investors have reacted to this deteriorating outlook by pushing up yields tot heir highest level since January 1998. And if the run of bad economic news continues, further increase cannot be ruled out.

However, another economic analysis–this one from Strutt & Parker–takes a less bearish line. S&P partner Andy Martin points out: ‘The economic background to the current slowdown is one of far lower inflation and interest rates and this helps us all. I believe that over the coming months, relative to the stock market, we will continue to see property doing well as other markets are more strongly affected,’ he says.

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