Investor and occupier demand shrugs off higher rates

Investor and occupier demand has continued undeterred despite interest rate rises, says RICS Commercial Property Survey.

Despite a rise in borrowing costs during Q4, property investment remained positive. Investment demand continued rising firmly though a mild slowdown has occurred in retail and the industrial property markets. 26 percent more surveyors reported a rise in investor demand as opposed to a fall down from 29 percent in the second quarter. Interest rate rises have had little dampening impact on new business occupier enquiries for space as a stronger economy has supported business expansion.

Equally, the booming ‘City’ economy has led to office demand in central London rising at the fastest pace in the survey’s history. 63 percent more chartered surveyors reported a rise than a fall in demand, up from 44 percent in the previous quarter. However the greatest strengthening in occupier demand occurred in the north, underpinned by a resurgent industrial sector.

Retailer appetite for shop space remained poor despite buoyant high street trading but the pace of fall in demand slowed somewhat across most regions. Occupier enquiries began to stabilise having been in decline since mid 2004. Surveyors remain pessimistic regarding the outlook for retail property over the coming months with no regions expecting a pick up in activity.

RICS spokesperson Ian McRae said: “Borrowing costs have done little to dampen property investment. A strong economic outlook has allayed any fears that demand for commercial property assets have hit a brick wall. Investors are focussing on rising rental levels and are looking forward to greater income returns in the year ahead.

“The financial sector in London continues to push growth in office demand from businesses to record levels but the retail market has yet to show any signs that improved consumer spending has had an impact. With consumer confidence unlikely to shrug off the recent interest rate rise, the retail sector could continue to suffer.”