The credit crunch has hit tenant demand – which fell at a faster pace in the developed world in the second quarter, according to the latest RICS global commercial property survey.
The survey shows transaction volumes and capital values plummeted as the commercial property market suffered under financial liquidity constraints.
Seventeen per cent more chartered surveyors reported a fall than rise in tenant demand as the effect of the credit crunch deepened.
The worst hit areas were North America, Australasia, western Europe and, to a lesser degree developed Asia.
In western Europe, the net balance of surveyors reporting a fall fell to -27 per cent from -22 in Q1, while in Australasia and North America it fell to -35.5 and -36 respectively.
All sectors suffered with the retail market the most depressed and the office sector dropping to a further low. Capital values declined at a faster pace in the developed world with the pace of growth almost halving in developing markets.
Yields have been rising across most global markets and at a faster pace in Q2. Many buyers have been re-pricing risk further and bidding at lower values as economic signals have sent alarm bells ringing, raising the possibility of tenant defaults. A rise in yields was recorded in emerging markets for the first time in the survey’s history as aggressive inflation fighting in some locations has impacted upon commercial property pricing.
Growth in purchasing activity continued its downward spiral with all regions outside Latin America either stagnating or declining.
The weakest investment markets were seen in North America, Australasia and western Europe. Indeed, of the more than 50 countries surveyed, seven of the ten worst performing are in western Europe, with the most negative sentiment towards prices for Q3 expected in the Republic of Ireland and Spain.
Outside western Europe, Hungary, New Zealand and South Africa displayed the most negative sentiment towards future prices with the US positioned only one place above the bottom ten.
The UK also continues to fall foul of credit crunch restrictions, with available floor space on the rise across all sectors and rental expectations among the most negative in Europe outside France. The number of investment bidders per property has declined at a faster pace over the past quarter while capital values are expected to continue their descent into 2009.
RICS senior economist Oliver Gilmartin said: “The pace of upward yield shift gathered momentum across many markets in the second quarter as renewed fears over a prolonged economic slowdown has raised risk premiums and the real possibility of increasing tenant default. The outlook for rents has been pared back across many markets as well as some emerging markets where the battle against inflation has taken centre stage.
“Significantly, inducements are on the rise in every global region outside of Latin America a trend which has historically provided a lead indicator for slowing rental advance.
“Markets exposed to the housing and consumer slowdowns are unsurprisingly displaying the weakest sentiment on downgrades to economic growth with the retail sector the least favoured.”