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LONDON-Rents on commercial property are expected to fall by 1.2% this year, according to new research by RICS.

The report concludes: “The economy showed only weak growth during the first half of the year, business investment is stagnant and demand for commercial premises has been falling since 2001.” There is little hope of a significant improvement in the short term given that employment levels are expected to show only modest rises this year and next.

At the same time as falling demand, construction totalled 1.2% of GDP and this “is holding back rents”. This combination of factors had preompted RICS to predict a 1.2% fall in commercial rents this year “before staging a modest recovery to growth of 1% in 2004″.

Although the occupational market remains tight, the investment market is “holding up relatively well” and RICS expects commercial property to show a return of 9.2% in 2003 and 8.8% in 2004. Commercial property currently yields a rental income of 6.75%, higher than the yield on equities and bonds.

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