Commercial lettings starting to struggle

A report from the Royal Institute of Chartered Surveyors (RICS) found that only five per cent of chartered surveyors reported an increase in commercial property occupation, compared to 43 per cent reporting a fall. According to RICS this is the third successive quarterly fall and landlords are increasingly using incentives, such as free rental periods or help with fitting costs, to persuade firms to take new leases.

The reort found that the amount of empty florrspace is rising, especially in London, a phenomenom last seen in the boom and bust period of the late eighties and early nineties.

Graham Chase, chairman of the commercial property faculty at RICS, said: "The well documented falls in confidence in UK business, ongoing profit warnings and nervous worldwide stock markets continue to set the tone. Not surprisingly, demand for business space continues to decline with both landlords and tenants taking appropriate action to protect their downside. For tenants this means reducing property overheads and dumping surplus space, and for landlords it means incentivising potential occupiers to maintain income streams.

"However, the fundamental nature of the market appears to be very different to the difficulties experienced in the early 90s following the late 80s boom. There has not been an explosion of new development space, so oversupply will not be such a feature and consumer expenditure remains buoyant. Furthermore, low levels of interest rates have helped to maintain property values. Consequently bricks and mortar has been a safe haven against the volatility and limited returns of other investment classes. Nevertheless the health and strength of the occupier is ultimately the most important element of any property, and in this respect the commercial market has a difficult time ahead in certain sectors, particularly central London and Thames valley offices."