Unprecedented rise in demand for commercial property outstrips supply

There was a marked increase in demand for office space in the first quarter of this year. According to the latest RICS (Royal Institution of Chartered Surveyors) commercial property survey, tenant demand for commercial property rose at an unprecedented rate; with 52 per cent more surveyors polled reporting higher demand from clients for space. Proving that the recovery is no longer limited to the capital, this increased demand is being seen in all regions outside of London. However, demand for commercial property is fast outstripping supply, resulting in rising rents. Following four quarters of declining supply as suitable commercial space is snapped up – 30 per cent in this latest poll are reporting a further drop in the availability of office space, with expectations for rising rents at the highest level since before the financial crisis.

Twelve month rental expectations are around 4.5 per cent for office space, with capital values expected to rise by 5 per cent over the period.

“Today’s figures show demand from occupiers for commercial space is continuing to strengthen and, offers further proof that the economic recovery is gathering traction, commented Simon Rubinsohn, RICS Chief Economist.

“Although the central London market remains particularly hot, it is encouraging that demand is now also rebounding away from the capital. Moreover, there are also signs that investors are widening their horizons with enquiries to acquire real estate picking up in many parts of the country. ”

RICS’ London-based members also report that the loss of office stock to residential is contributing to a severe shortage of offices. As a result, office rents are continuing to rise and in order to stay within budget, more fringe locations are being considered acceptable.