Demand to rent UK commercial property falls to 5-year low

The sun may be setting on London's days of financial dominance. [r.nagy/Shutterstock]

Demand to rent British commercial property levelled off for the first time in almost five years during the past three months, as online shopping hurt high-street retailers and Brexit and election worries unsettled other potential tenants.

The Royal Institution of Chartered Surveyors said on Thursday that its gauge of commercial tenants’ demand for property fell to -2 for the second quarter of 2017, its lowest reading since the third quarter of 2012.

“The commercial property market has enjoyed a good run and it is hardly surprising that we are now seeing a flatter trend emerge … which chimes both with recent economic newsflow and the political environment,” RICS’s chief economist Simon Rubinsohn said.

Britain’s vote to leave the European Union has led banks to start to move some staff from offices in London to elsewhere in the EU. And Prime Minister Theresa May’s failure to win an outright majority in June’s election has cast doubt on whether her government will be able to negotiate a smooth transition.

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“Anecdotally, political uncertainty is cited as a factor weighing on occupier and investor decisions, with hesitancy now extending to some areas beyond London,” RICS said.

The economy grew just 0.3% in the second quarter after 0.2% growth in the first three months of this year, official figures showed on Wednesday, the weakest start to any year since 2012.

Consumers have been squeezed by rising inflation since last year’s Brexit vote, hurting many retailers.

The British Retail Consortium said on Thursday that employment in the retail sector had fallen by more than 3% over the past year, in contrast to jobs growth of 1% in the economy as a whole. “With consumers seeing inflation squeezing their spending power, the challenges facing retailers will only increase in coming months,” said BRC chief executive Helen Dickinson.

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However, RICS said growth in online shopping had boosted demand for industrial space used for warehouses.

British commercial property suffered in the immediate aftermath of the referendum, with some commercial real estate funds forced to temporarily suspend investors’ access as they tried to pull their cash out.

An accompanying drop in the value of the pound has since helped buoy the sector with foreign demand, but in London in particular respondents were downbeat.

RICS said that more than two thirds of respondents in London believed the commercial property cycle was in the early stages of a downturn.

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