Take Up Slows Down

Take-up of commercial property rose further in the third quarter of 2000, though the pace of increase has moderated to its slowest since the end of last year. A slight easing in economic growth has dampened demand conditions but limited availability of commercial floorspace is expected to keep rental growth firm in the fourth quarter.

Chartered surveyors reported a further quarterly slowdown in the sale and letting of commercial property for occupation in the third quarter of the year. The proportion of surveyors reporting a rise in take-up over those reporting a decline was 6% in Q3, down from 9% in Q2. The slowdown since the beginning of the year has been even more marked, down from a balance of 21% in Q1. However, overall take-up has risen for the sixth consecutive quarter.

The drop in activity is a reaction to a modest slowdown in the service economy and a standstill in the manufacturing sector. Strong competitive pressures have amplified the impact of a slight drop in economic activity, leading the retail property sector to suffer an absolute drop in property take-up during the third quarter.

Confidence in tenant demand showed stability in the third quarter, with take-up expected neither to fall nor rise in the following quarter. The level of confidence is similar to that of the previous quarter, indicating that confidence in the market is no longer deteriorating.

Subdued property demand from tenants is expected to take the edge off the pace of rental growth in the commercial property sector. The balance of surveyors expecting an increase in rents for the next quarter fell to 23%, from 27% in Q2. However, confidence in commercial property rents is still firm, holding at levels attained in the latter half of 1999, supported by further falls in available property for let or sale.

The RICS Commercial Survey is a quarterly report on information taken from chartered surveyors working in the office, retail and industrial sectors.