Market Commentary

Chartered surveyors reported a further drop in business demand for commercial premises in the third quarter of 2002. Falling business investment shows that a sharp brake has been put on company expansion plans, hitting demand for property. However, the survey indicates that corporate demand for property may stabilise in Q4, as surveyor pessimism in market prospects has receded markedly.

A drop in occupier activity reflected another large fall in take up of office property. The office market in London, and to a lesser extent, the South East, has been hit by the downturn in the financial/technology sectors. Elsewhere in the property market, activity has shown some signs of stabilising. An upturn in surveyor confidence to its best position in 2 years mirrors other indicators showing a return to modest growth in the economy, following a standstill at the turn of the year. However, the renewed sell-off in the stockmarket in September points to a weak economic outlook, and uncertainty over a possible war in Iraq could yet weaken occupier activity further.

Despite the recovery in confidence, market conditions eased overall. Availability of property for occupation rose firmly again in Q3, marking the sixth consecutive rise, and in all sectors of the market. As a result, surveyors have reported continued declines in lease lengths and a further rise in incentives on offer to tenants. Rental expectations also deteriorated again slightly, though weaker sentiment centred on the London office market. For both retail and industrial property, confidence in rental levels has generally stabilised.