Demand for office space in the West Midlands showed further signs of stabilising during the third quarter of 2006, falling back slightly on the significant increases recorded earlier in the year.

The trend has emerged as new office completions in the region continue apace, up by nine per cent, according to the latest Royal Institution of Chartered Surveyors commercial market survey.

Despite the small drop in demand reported by chartered surveyors in the West Midlands, falling back by five per cent on the second quarter, surveyor confidence remains high – up 13 per cent in the third quarter.

Simon Quantrill, partner at Knight Frank and RICS spokesman, said: "We recently saw the record rent of #30 per sq ft for office space achieved within Birmingham city centre, with the letting of 7,000 sq ft to Yorkshire Bank at Temple Point. This shows continued confidence in the city’s office sector and is excellent news for the Grade A market. Now the barrier has been broken, the city is likely to see rents carry on rising, as further quality schemes, such as Colmore Plaza, come on to the market.

"Despite this, the busiest market has been outside of Birmingham city centre as activity increases in the less traditional office strongholds.

"The Wolverhampton market is now achieving rents of #16-17 per sq ft and enquiries are on the up from a number of prospective occupiers looking to move to or relocate within the Black Country.

"During the past quarter we have seen a upturn in new enquires across the region and, with a number now on their way to becoming strong lettings, we anticipate it will be a busy time leading up to Christmas during the fourth quarter."

Demand for retail space fell back once again last quarter, down six per cent on the previous three months, with the decline of new enquires also picking up pace.

The fall in demand for industrial premises accelerated during the third quarter, though surveyor confidence in the sector rose slightly as rent expectation levels increased. Looking across the UK, investor demand in the retail property sector has picked up despite continued weak demand for shop space from retailers. For the third quarter, nine per cent more chartered surveyors reported a fall in retailers’ demand for shops than a rise.

While retailer appetite for shop space is still poor, investors are coming into the market hoping the sector has passed its lowest point. However, retailer enquiries for new shop space dropped again for the ninth consecutive quarter, though surveyors expect demand to bottom out in quarter four. Retail property is the only sector to record an acceleration in purchase activity in Q3, while growth in turnover slowed for the office and industrial property sectors compared to Q2. Nonetheless, overall investment demand for commercial property showed another solid increase in Q3. and contrasts with moderate rises in occupier demand for property.

Overall business property demand rose for the fifth consecutive quarter as economic conditions have improved and investment spending has been stepped-up by firms.

Seven per cent more chartered surveyors reported a rise in activity than a fall, compared to eight per cent in Q2 and one per cent a year ago. The demand for office space rose by the largest on record with 28 per cent more chartered surveyors reporting a rise than a fall boosted by a strong business and financial sector.