West Midlands commercial property recovery is 'lagging behind London', says RICS

Apr 22 2010 by Tom Scotney, Birmingham Post

The commercial property market recovery in the West Midlands is lagging behind other parts of the UK, according to the latest survey by the Royal Institution of Chartered Surveyors.

The RICS’ UK Commercial Property Survey while there were signs of a turn around in some sectors of London’s commercial property market, the West Midlands continued to recover at a slower pace.

Rental expectations rose dramatically for London offices, moving above zero for the first time since the end of 2007 as available space declined for the second consecutive quarter. This is the first time more RICS surveyors have reported an anticipated rise in rents for two years. The positive net balance of 57 per cent (compared with the previous reading of zero) for central London office property was the biggest upward jump on record.

This contrasts with the picture in the rest of the UK where available space is rising across all sectors and rental expectations are still negative. Here in the West Midlands rental expectations across all commercial sectors remained negative but reported a two year high, with 21 per cent reporting a fall rather than a rise.

Commercial property lettings activity continued to pick up across office and retail property within the West Midlands for the second consecutive quarter, although investment demand has slowed somewhat outside the London metropolitan area.

Confidence in the outlook for lettings increased, but sentiment was slightly less buoyant than at the end of the fourth quarter of 2009 across the UK. Regionally the office market saw the biggest increase in confidence with 18 percent of surveyors reporting a rise rather than a fall, up from a negative four percent the previous quarter. Some surveyors voiced concerns over the potential impact on regional lettings activity of the anticipated public sector employment cuts following the upcoming election.

It also said there was a changing balance of power between landlords and tenants. Growth in inducements being offered by landlords to secure lettings has slowed across all regions and sectors. In the West Midlands this figured remained positive at 34 percent more surveyors reporting a rise rather than a fall in inducements across all sectors but fell from 46 percent at the end of 2009.

Mark Swallow, the West Midlands RICS spokesman and head of the Birmingham office of Knight Frank said: “Office lettings activity continues to rise modestly across the country and this is reflected in the West Midlands. Although surveyors still remain cautious, confidence is returning to the marketplace and we are definitely seeing a different landscape to last year. There are worries however that some regional office markets could suffer a setback if public sector employment cuts weigh on demand, whoever wins next month’s election.

“There are some signs that a lower pound and a gradual rebalancing of the UK economy towards greater export activity is starting to feed through into industrial lettings activity with a continuing positive take up trend in the West Midlands.

“Growth in investment transaction activity continued in Q1 albeit at a slower pace outside the capital. The stronger the price gains this year the less scope for further rises in 2011 without a corresponding rental recovery, however the lack of new development product may well balance this out. The investment recovery would be reined in by rising borrowing costs.”