November 6, 2014
Nationwide availability of office space declining at fastest rate since 1990s
The availability of office space across the country has declined for the sixth consecutive quarter and at its fastest pace since the late 1990s, according to the latest RICS Q3 Commercial Market Survey. One in five said more than 10 per cent of office space in London is now earmarked for residential conversion. Twenty per cent of respondents report that a rise in transactions of commercial properties being sold with Permitted Development Rights (PDR) had led to more than 10 per cent of available commercial properties being earmarked for conversion into residential use. At the same time, over half (51%) of surveyors reported a growth in demand for office, industrial and retail space, with two thirds suggesting that if PDR exemptions are not extended then the availability of commercial properties will fall further. Demand for commercial space has risen across the whole of the UK, with 32 per cent saying availability across office, retail and industrial properties had fallen, while demand has risen to a net balance of 44 per cent.
For the next 12 months a net balance of 71 per cent of surveyors are forecasting an increase in rent levels in London across all segments of the market, compared to 36 per cent in the North of England.
Simon Rubinsohn, RICS Chief Economist, commented: “The Q3 results provide further evidence that the economic expansion is becoming more broadly based with tenant demand for space picking up in all parts of the country and the need for landlords to provide inducements diminishing. There are also now clear signs that investors are casting their nets wider in a bid to find better value in the market following the steep drop in yields on prime property in the capital
“While permitted development rights is helping in a small way to boost much needed housing supply, the latest survey suggests that it is also having the unintended consequence of contributing towards a shortfall of office space in some parts of the country.
“Feedback from members suggests that this is particularly marked in London and adding to the upward pressure on rents. Moreover, there is a belief that this problem will become more pronounced if existing exemptions are removed.”