RICS highlights fears over commercial property

A rise in the number of commercial properties changing hands for conversion to housing is having an adverse impact on the commercial market, it is claimed.

A survey by the Royal Institution of Chartered Surveyors (RICS) in the second quarter of 2014 showed an increase in the number of transactions of commercial properties being sold with Permitted Development Rights (PDR) to be converted into residential properties.

The survey of RICS members showed that a net balance of 49% of respondents said this activity was having a “moderate” impact on commercial market activity, while almost one in five – a net balance of 18% – said it was having a “substantial” impact.

However, respondents in the North were less affected by PDR transactions with a net balance of 49% saying it was having “no effect” on the market against 32% of respondents in the south saying the effect was “substantial”.

Overall availability of commercial property declined at its fastest rate since the commercial market series began in 1998 – with a net balance of 33% more surveyors reporting shortages. There were sharp declines in office and industrial space availability while the lack of supply to the commercial market is pushing investors away from prime location investments and towards “B” grade investments.

Across the North of England, over two-thirds of respondents said market pressures had forced investors to look at “B” grade commercial property.

Some 54% of those polled said investors were looking to secondary assets, while a further 14% said they were moving into secondary and tertiary properties.

Looking ahead, expectations for rent levels over the course of 2014 revealed a net balance of 33% more surveyors expecting rent levels to increase throughout the year. Respondents forecast rents will rise by 5.5% in the industrial sector, 4.3% in the offices sector and 2.8% across retail space.

Simon Rubinsohn, RICS chief economist, said: “The latest results provide clear evidence that the economic recovery is broadening out across the country with rising employment increasing the demand for space in all sectors of the market. As a result, the balance of power is now shifting back to landlords.”