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Nov 10, 2011

Slow economic growth responsible for decline in occupier demand

Poor economic performance has affected the commercial property sector in the UK, with a new survey revealing occupier demand has witnessed a decline.

The Investment Property Databank (IPD) Quarterly Index states growth in the sector slowed to a mere 0.3 per cent, with a 1.8 per cent total return.

Quite a few factors were cited for this, the most important being the economy, which seems to have grinded to a halt. Others factors responsible for the stagnating growth in the commercial property industry were the government’s cost-cutting measures, increasing inflation and the lack of confidence in the country’s ability to evade recession.

A combination of these factors has seen rental growth increase minimally, by just 0.1 per cent in 2011’s third quarter. Despite these numbers, IPD said that investors were still looking to enter the market, believing it to be a comparatively safe haven in this weak economy. This was apparent in the 14.6 per cent increase in purchase activity this third quarter amidst concerns about the large availability of stock, especially in areas like Central London.

But office performance was not very cheerful. The capital growth in Central London, which had kept the sector afloat during the recovery, saw a decline. It was down from 2.8 per cent in the previous quarter to 1.1 per cent. Negative growth was also witnessed across other areas outside of the capital city. At the same time, rental values were also experiencing a fall in value as far as commercial office space was concerned.



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