A decrease in tenant demand for commercial real estate will have a marked impact on the sector over the course of 2012. This is according to the Royal Institution of Chartered Surveyors (Rics), which revealed that, overall, tenant demand slid during the final quarter of 2011. In its UK Commercial Market Survey, the organisation stated that, even in London, fewer businesses are seeking new space, recording a notable fall in the number of firms seeking new offices in the capital. As a result of this trend, rental expectations for the coming year weakened in every area, except for prime offices in London where further growth is anticipated.
Simon Rubinsohn, Rics chief economist, commented: "Rental expectations have predictably become a little more negative in the face of the recent run of grim economic news." He added that even in the prime London office sector, the outlook for demand is "a little less strong than it was". Looking ahead, Mr Rubinsohn explained it will be difficult to achieve a "sustained recovery" in the commercial real estate market until a resolution to the eurozone's debt crisis has been reached.
However, property economist at Capital Economics Kelvin Davidson explained recently that the ongoing problems with eurozone economies may boost real estate investment in London. "On the one hand, you could see investors lose confidence in some European countries and European assets and put money into London property, which is often perceived as a safe haven," he stated. Mr Davidson acknowledged that another potential result of the eurzone debt crisis could be investors removing their funds from overseas markets and returning them to their home country.
He added that the UK's economy is expected to fall back into recession during 2012, which is likely to result in falling capital values across the country's commercial real estate market. He went on to predict a five per cent decline in the prices of such assets over the coming 12 months, with rental values also falling by between two and three per cent.
