January 31, 2003—The tenant is king, says the Royal Institute of Chartered Surveyors (RICS), reporting a further dramatic slump in the UK commercial property market in its latest quarterly survey—and landlords are losing power.
The office market took the brunt of the continuing descent, with 47% more surveyors reporting a fall in demand, than a rise. Confidence in this sector plummeted from 3% of RICS members expecting falls in quarter four 2002, to 47% expecting further falls over quarter one 2003. In short, prospects are not looking good for landlords.
RICS chief executive, Louis Armstrong gave his view: There is little cause for cheer in the UK commercial property market at the moment although there are many firms, especially outside London who remain unscathed. A turnaround in business investment would prevent the London malaise spreading but it is very difficult to say when this might happen in the current climate of global economic uncertainty.
At the same time, government is threatening regulation to improve the lot of tenants through legislation to make the market more flexible. But with the current fall in rental expectations and the rise in incentives, the market is, for the time being, doing the job for them.
Any businesses that are bucking the trend and doing well at the moment are likely to take advantage of current market conditions and negotiate favorable agreements as tenants, RICS points out.
The survey shows a significant increase in incentives and inducements offered to tenants. These may take the form of shorter lease lengths, rent free periods or help with fit-out costs. An increase in the value of inducements is indicative of a swing of bargaining power away from the landlord and towards the tenant.
—Fiona Perrin
Reprinted with permission; copyright 2003 i-FM
