RICS - Business Demand Shows Vital Signs
Business demand for commercial property has stabilised after nine quarters of decline says a survey published by RICS today.
A recovery in economic activity has signalled a levelling off in occupier demand for both office and retail property, including the key London office market. Only 2% more chartered surveyors reported a fall in new sales and lettings of businesses property than reported a rise in quarter three, compared to an average of 12% more over the previous five quarters.
New enquiries for commercial space have also bottomed out, providing a welcome fillip for confidence in a sector worth 12% of GDP, or £120bn a year. Chartered surveyors are hopeful of a modest rise in commercial property demand in the last quarter, the first positive expectation since the end of 2000. The outlook for rents on business premises is generally flat, though some increase is envisaged in the retail property sector, particularly for out-of-town units.
However, it remains an occupier's market. Lease lengths and inducements are becoming more favourable to tenants which is good news for business. An end to the manufacturing recession has not been enough to support an upturn in demand for industrial space, which slid further in quarter three.
An obstacle to further recovery, though, is the Treasury's plans to increase the tax burden on business tenants. RICS has expressed fears that a new stamp duty tax on leases (announced last week and due to take effect 1 December) will hurt business just as it begins to get off its knees. Up until now, lease duty has only been charged on a single year's rent. In future it will be paid over the life of the lease, a manifold increase of up to eight times what businesses currently pay.
RICS chief executive Louis Armstrong said:
It is still a tenant's market out there, with demand conditions downward or dormant for over two years. However, this quarter we have seen some encouraging signs. It is too early to say we have turned a corner but it looks like we are approaching the corner at least. The increase in lease duty, though, is an ill timed blow, particularly within the retail sector. The right property strategy has never been more important."