Demand for commercial property remains firm

Demand in the UK for commercial property is holding firm, reports the Royal Institution of Chartered Surveyors' (Rics) Commercial Property Survey.

A total of 13 per cent more chartered surveyors reported a rise than a fall in overall demand in the last three months, a slight fall from the previous quarter.

However, rental expectations are now at the highest level in six and a half years.

Rics commercial property spokesperson Ian McRae said: "Record rental expectations offer investors some comfort that continued growth will support returns. The global economy is supporting the commercial property sector and investor appetite for the asset class has not dried up."

The research also shows divergence across the nation, as London's retail market sees investment and occupier demand picking up, while declines are being reported in other UK regions. In particular the capital's commercial property market is being aided by the boom in the financial services industry, along with a labour market that is refusing "to bow to rising interest rates".

"The London economy is pulling away from the rest of the market with commercial property dynamics showing a strong divergence in the capital, particularly in the retail market," Mr McRae said.

"Consumer spending in London remains strong but interest rates hikes have started to take affect elsewhere causing a slowdown in retail demand."

The report goes on to note that the surveyors' optimism has been boosted by strengthening demand conditions in both the office and industrial markets. The solid state of the global economy, along with recovery in the eurozone area, has also supported the industrial market, which recorded demand rising at the fastest rate in seven years.

New enquiries to occupy commercial property also rose with most action coming from the industrial market.

The report states: "Investor demand for commercial property is still rising, indicating that investors are not fleeing the sector in their droves due to yield differentials with other asset classes."