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London leads UK commercial property recovery – RICS

The London commercial property market is leading the turnaround in tenant activity with retail and office demand moving into expansionary territory at a faster pace than elsewhere.

Central and Greater London office markets saw tenant demand rise for the second consecutive quarter and at more than double the pace of the previous survey period. Some 42% more chartered surveyors reported a rise than a fall in lettings activity in Central London compared to 18% in the previous quarter, the highest figure since the first quarter of 2007. Across the UK as a whole, the net balance for tenant demand has risen to 8% from a negative reading of 11% in the previous quarter.

Despite the improvements in demand, rental expectations have yet to turn positive although the latest survey points to a sharp deceleration in the likely pace of rental declines across all three sectors in the run up to Christmas. The greatest turnaround in sentiment has been among surveyors working in the Central London office market where only modest declines in rents are expected into the fourth quarter. For the time being, greater lettings activity continues to be supported by rising levels of inducements which rose at a similarly firm pace across all three sectors in the third quarter.

Looking ahead, near-term indicators continue to point to an ongoing improvement in the fourth quarter. New inquiries to occupy business space turned positive for the first time since the downturn got underway and it is the first time in five years that inquires have risen in unison across all three sectors. The net balance currently stands at 11%, up from a negative 2% in the second quarter. London is leading the rest of the UK with inquiries for office space in the capital reaching the highest net balance since the third quarter of 2007. Indeed, confidence towards the outlook for lettings activity has perked up across all three sectors. The biggest rise in confidence has been in the office market followed by the industrial sector.

Oliver Gilmartin, RICS senior economist said: "The results may provide the first signal that a strengthening in the global economy has filtered into multinational lettings activity, particularly for Central London offices where the veil of pessimism towards the outlook for rents is slowly lifting.

"Industrial lettings demand is also gaining some support from the improved economic backdrop. The laggard remains the retail sector where surveyors expect little improvement in tenant activity in the run up to the crucial Christmas trading period.

"In the investment market, the reflationary climate coupled with a reduction in the pace of job shedding and a weaker pound is quite clearly stimulating a return of investor interest at the prime end of the commercial property market."

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