London commercial rents set to slump amid ‘drastic’ change to market
Commercial rents in London are widely expected to fall across the board in the next three months, a new survey from RICS has shown, as the coronavirus pandemic continues to hammer the property market.
According to the data, 95 per cent of survey respondents expect retail rents in the capital to decline in the next quarter, the poorest reading since 2008.
Meanwhile, in the office sector, a net balance of 68 per cent of London respondents expect rents to fall in the same period.
Expectations for the industrial sector are more resolute, although the survey found that six per cent of respondents still expected a decline in rents.
In addition, 93 per cent of respondents across the country expect that businesses will scale back their space requirements in the coming two years.
The forecasts come after a second quarter in which 66 per cent of respondents said that they had seen occupier demand fall as people took to home working en masse due to lockdown.
This decline was especially pronounced in the retail sector, as the shuttering of all but essential shops saw a 90 per cent decline in demand.
Due to the increase in people working from home, demand for office space also fell dramatically this quarter with a net balance of 80% of agents reporting the fall.
For the first time since 2012, respondents reported a marginal fall in interest for London’s industrial space.
Tarrant Parsons, RICS economist, said that the rise of home working had “raised many questions across the office sector, with respondents expecting businesses to re-evaluate their office space requirements over the next two years”.
“With demand from both occupiers and investors falling sharply, respondents now anticipate rents and capital values will come under downward pressure while the market adjusts to a drastically changed economic environment”, he said.
Over the next twelve months, expectations for London’s retail space suggest there will be a further decline, with rents are likely to fall by 11 per cent and 17 per cent for prime and secondary retail space over the coming year.
Respondents expect slight growth in rents for the prime industrial sector, but the capital’s office space is set to see rents fall by 5 per cent for prime office space and 9 per cent for secondary space.