Business Reaps The Benefits of a Weak Rental Market

LONDON-The Royal Institution of Chartered Surveyors (RICS) says that business is reaping the benefits of a weak property market. In its Commercial Property Survey Quarter Two 2003, the RICS says that the UK property market remains favourable to tenants despite signs that the downward trend landlords have experienced over the last three years may have turned a corner.

The most encouraging sign of improvement is that demand in the London office market, which has been in tailspin for between two and three years, is stabilising. The RICS acknowledges that it has been a grim time for commercial property, with confidence and demand in continual decline and this has not abated in quarter two, although the deterioration is less pronounced.

Nor has the end of the war with Iraq prevented further falls in take-up of floor space. Businesses remain discouraged from expansion by the lacklustre economic climate. New business enquiries for commercial property fell for a fifth consecutive quarter, although by less than the early part of the year. 12% of surveyors reported falls in new enquiries compared to 19% in quarter one.

Surveyor confidence in future prospects is still downbeat but substantially above the post September 11 nadir. The survey shows how new enquiries, sales and lettings of property to businesses all strengthened, while the number of surveyors reporting a rise in empty floorspace slipped back. Sure signs that things have, at least temporarily, improved.

An important driver of the improvement in the London office market is the performance of the stock market, which has risen steadily over the last three months. If the stock market rally is a signal of genuine economic recovery to come in 2004, new business demand may turn the corner next year.

Meanwhile, some occupiers are making hay as sluggish demand has kept upward pressure on the value of inducements and incentives landlords provide to encourage tenants to take up leases. Rent free periods and help with fit-out costs have become a feature across all sectors of the market.

RICS chief executive Louis Armstrong said: ‘The commercial property market continues to operate in a very difficult climate due to the weak global economy. But this presents an opportunity to businesses to negotiate harder on lease terms and explore the options available. A crucial competitive advantage can be gained by businesses who equip themselves with the right strategic property expertise to exploit this.’