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General
News
Tenant demand for commercial property fell to 2003 levels, says RICS’ Commercial Property Survey published 30 January 2008.
Surveyors reported that business demand for commercial property fell in the fourth quarter of 2007 – 12% more Chartered Surveyors reported a rise than a fell in demand compared to – 2% in Q3. All sectors reported a all for the first time since Q1 2003 when the net balance was – 20. The number of surveyors reporting a decline in office demand moved into negative territory for the first time in over four years while the retail sector saw the biggest declines of all sectors, even surpassing the falls recorded in 2005 when the economy was slowing more appreciably. In fact, demand in the retail sector fell at the fastest pace in six years as a slowing housing market and the recent credit turmoil began to weigh upon both retailer and consumer confidence.
New buyer enquires also fell across all three sectors having previously held firm against credit market jitters. The retail sector witnessed the sharpest decline in enquiry levels with the greatest declines in Central London and Wales. As with demand, the number of surveyors reporting a fall in enquiries fell to the worst level since Q1 2003.
Looking forward, surveyors continued to be pessimistic as a bleaker outlook was anticipated across all sectors. Surveyor confidence in the office sector turned negative for the first time since 2003. Rental expectations turned negative for the first time in over four years with surveyor optimism dented across all sectors.
The credit market turmoil continued to have a negative impact on investment into commercial property assets with capital values declining across all areas. Surveyors reported declines in capital values within the office sector as the net balance dropped from – 17.3 to –47.8%, Recent financial turmoil has been investors re-price risk. In the retail market the net balance of capital values fell from –20% to –48%.
Commenting, Simon Rubinsohn, RICS chief economist said: “Pessimism regarding the near term economic outlook has started to make serious dents in market sentiment as surveyors start to see the previously strong office sector join the retail market in decline. While finance remains scarce, commercial property’s continued reliance on capital funding could see the market dip further.”
Tough year ahead
Confidence amongst businesses in south Wales may have been dented by the tougher conditions of recent months but firms are taking a balanced view of 2008, according to the Business in Britain survey from Lloyds TSB Commercial.
The less positive outlook comes as a result of six months of slower orders, sales and profits in south Wales. All areas saw a substantial decrease, with the balance of firms reporting positive sales down from 59% in July to 43% in December, and orders down to 36% from 47%.
As a result, firms in south Wales also expect to see profits fall over the next six months. A dramatic drop in expectations has seen the balance tumble from 31% in July to 14%. The number anticipating sales growth has also decreased from 52% in July to 34% in December.
Weaker profit forecasts have not dampened the appetite for investment through, six months also the balance of firms expecting to increase capital spending was 2% and this has now risen slightly to 6% in December. Recruitment figures are also steady with a drop of just two percentage points to a balance of 20% of businesses expecting to recruit more staff compared with July.
There is some evidence that south Wales businesses are feeling a slight pinch on their finances with a balance of 25% of firms reporting strains on cash flow. However, this has to be put into context, as this is still far below the peak reached during the 1990s recession when 56% of firms across the country reported problems with cash flow.
Despite tougher times ahead, firms are still optimistic about their scope for increasing prices, in the hope of countering falling sales. The balance of firms expecting to be able to raise prices has reached 40% - up from 19% in the last survey. This could have implications for the Bank of England, which has to consider inflationary pressures when making interest rate decisions over coming months.
Ian Booth, Lloyds TSB Commercial director for south and west Wales said: “There’s no doubt 2008 will prove more of a challenge for many South Wales and Gloucestershire firms, but it’s a ride most will be able to endure.
It’s clear that investment spending will be capped, as businesses tighten their financial belts, but firms in south Wales are well versed in the art of cash management and financial planning and these are skills that should help them weather the storm throughout 2008 and beyond.”