Commercial property 'blighted' by credit crunch

Thursday 29th May 2008

Global commercial property markets are succumbing to the same slowdown currently afflicting the UK, it was claimed on Thursday.

According to the Royal Institution of Chartered Surveyors (Rics) global commercial property survey, demand for commercial property fell for the first time in four years during the first quarter of 2008.

This is the key measure of the health of the market, with 14 per cent more global surveyors reporting a fall rather than a rise in demand.

This marks a reversal of the balance of nine cent of surveyors reporting an increase in demand during the second half of 2007.

Particularly hard hit were demand for office space in North America and developed Asia, retail demand in Western Europe and Australasia, and industrial demand in Africa and the Middle East.

"Tenant demand is still rising across emerging markets although at a more muted pace as multinationals feel the pinch from tougher economic times," said Rics senior economist, Oliver Gilmartin.

"The worst may be behind for the Western European investment market which appears to be leading the correction in the global property cycle.

"Australasia is expected to be the worst performer into the summer with Japan also set for price declines and falling rents."

More pronounced is the fall in investment demand.

During the first three months of the year some 39 per cent of surveyors reported a fall in demand rather than a rise. This is a marked acceleration from the 16 per cent reporting a fall during the second half of 2008.

"Few markets have escaped the credit malaise which has engulfed commercial property activity since last summer," continued Mr Gilmartin.

"What started in the developed world has spilt over into investment activity across several emerging markets.

"With prime yields across some emerging European cities now on par with those in developed markets it is little surprise that investors have turned cautious on a relative valuation basis when risk is factored into the equation."

Closer to home, the UK continues to fall foul of credit crunch restrictions, with available floor space continuing to rise as tenant demand eases back.

The outlook for the coming quarter remains subdued, with 23 per cent more surveyors expecting rents to fall than rise.

Challenging conditions look set to continue for much of Western Europe as investment demand and tenant demand edge further into negative territory. ADNFCR-1783-ID-18613751-ADNFCR

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