The commercial property market is grappling with a drop in confidence and investor demand after the Brexit vote, according to survey by the Royal Institute of Chartered Surveyors (RICS).
The RICS survey of chartered surveyors found 36 per cent of respondents feel commercial property is at the start of a downturn.
Investors are particularly worried about London. Over half of respondents (54 per cent) in the capital think the market could be facing a downturn – the highest proportion in the whole of the UK.
In the second quarter of 2016, investment enquiries fell; the net balance dropped to minus 16 per cent, down from a positive net balance of 25 per cent in the first quarter. RICS said the fall was the largest quarter-on-quarter drop in investment demand that it has yet recorded.
Occupier demand has not risen for the first time since 2012, RICS said, and seven per cent more respondents believed rents would decline over the next quarter.
Alastair Chapman of Matthews & Goodman LLP said: "The City of London office market is paused post Brexit. A few transactions are still proceeding but the market is awaiting economic clarity following the Leave vote and the ensuing political questions over EU disengagement and single market entry terms.
"Our expectation is that business will generally continue, but with some short term downward adjustment in rents pending indications as to how Brexit negotiations may proceed."
Richard F Sanders of Sandars Laing said: "Uncertainty due to Brexit will last three to five years and impact particularly on the property and construction industry in all sectors…catastrophe in waiting."
"Our immediate market is boosted by inward investment into Croydon," said Peter Friend of HNF property. "The wider market appears overvalued."
Jeff Matsu, RICS senior economist, said: "Political and economic uncertainty in the aftermath of the referendum result has clearly dampened sentiment in the commercial property market, with the tone becoming visibly more cautious right across the UK.
"Although the impact is widespread, the drop in confidence has been most pronounced in London.
"Nevertheless, following several years of strong capital value and rental gains, momentum had already appeared to be slowing. Whether or not the sharp deterioration in the RICS survey data is a kneejerk reaction that will unwind as the result is digested, or the start of a more prolonged downturn, remains to be seen."