London's commercial property market outlook is being dampened by concerns of a downturn

 
Rebecca Smith
Foreign investment in the London market appears more resilient
Foreign investment in the London market appears more resilient (Source: Getty)

London's commercial property market outlook is more subdued than elsewhere in the country, with the capital bucking the UK trend for rising demand from investors and occupiers.

Almost three quarters of respondents to a survey by the Royal Institution of Chartered Surveyors (RICS) warned the market may be in some stage of a downturn, when outside of the capital, expectations were generally positive for office, retail and industrial rent.

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The survey of 347 of RICS' commercial property members found that negative sentiment regarding office and retail rent cancelled out positive expectations for industrial rent in the capital.

In the near term, London is also displaying more cautious sentiment, with weakening occupier demand producing negative rent expectations, while availability has picked up, as have inducements.

When it comes to the investment market, RICS said trends appear a bit more resilient, but headline capital value expectations are now more or less flat.

The central London market also had the highest proportion of respondents viewing it as overpriced to some extent, at 67 per cent.

Simon Rubinsohn, RICS' chief economist, said:

The underlying momentum in the occupier market remains a little more challenging in the capital than elsewhere with rents expected to remain under pressure away from the industrial sector. This is also mirrored in valuation concerns, with around two thirds of respondents viewing the London market as being expensive.

Despite this, foreign investors continue to view London in general and the office sector in particular as an attractive home for funds.

Rubinsohn said a particular issue going forward will be how the market responds to the "likely first interest rate rise in a decade next month".

He said: "Given that expectations are only for a modest tightening in policy, the likelihood is that it will be able to the weather the shift in the mood music. But this remains a potential challenge if rates go up more than is currently anticipated.”

Read more: Brexit hits investor demand for UK commercial property

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