The latest edition of the RICS commercial property survey has reported the biggest increase for nine months in demand for offices in the final quarter of 2005.
Reflecting this trend, lease lengths, incentives such as rent-free periods and help with fit-out costs are all stabilising.
With confidence at its highest in four years, the survey finds that there is a widespread expectation that rents will rise.
Buoyed by this positive outlook, office building project starts have seen the biggest increase in three years over this period.
RICS spokesman Ian McRae said: “Development activity is up across the country, which is unusual at such an early stage of a recovery in demand.
“Banks are still willing to back commercial property development despite the huge run-up in lending over the past decade, with banking exposure in this area rising sharply compared to other sectors of the economy.”
In stark contrast to the good news flowing from the office sector, the retail and industrial markets continue to stagnate.
A prolonged lull in consumer spending and lower tenant demand have contributed to an increase in inducements in the retail sector.
To add to the gloom, the survey found that in the last quarter inquiries have fallen at their sharpest rate in four years.
To make matters worse, the up-turn in consumer spending over Christmas failed to have any significant effect on demand for retail space.
More generally, rising foreign investor and pension fund demand saw commercial property capital values grow 12.2% last year and 11.6% in 2004.
Further investment in the sector is expected in the run up to 6th April when the rules change for including commercial property in a Self Invested Personal Pensions (SIPPs).
The year 2007 will see demand rise still further with the advent of UK Real Estate Investment Trusts (REITS).
References: EGi News 31/01/06
