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Commercial property demand pushing up prices, RICS reveals

A high demand for commercial property led to rising rental prices in the final quarter of 2015, the latest Royal Institution of Chartered Surveyors (RICS) Commercial Property Survey has revealed. While this is positive news for the market, could higher outgoings increase the likelihood of tenants defaulting on their payments?  

Demand and supply

Almost nine in ten respondents to the RICS’ survey predict rents will rise over the course of 2016, mainly due to the increasing demand and falling supply of quality commercial properties. The RICS revealed that this is the 11th time in succession that availability of commercial space has fallen over a quarter. What’s more, the amount of new developments across the UK has only slightly increased.

While 35% of chartered surveyors expect a sector-wide rent increase, the demand-supply imbalance appears to be particularly pronounced in the industrial sector. 43% more chartered surveyors reported increased demand for industrial premises during the final three months of 2015, with the same percentage predicting industrial rents with rise during the first quarter of 2016.

The London exception

While RICS pointed to a “low level” of new builds generally, London is the exception with 34% more surveyors reporting an increase in development during the last quarter. The interest of overseas investors in UK commercial real estate may have slowed down overall last year, but London still saw higher value foreign transactions than most other places.

However, more than eight in ten London-based respondents told RICS that commercial property in the capital was “overpriced”. This is a slight increase on the 77% who held this opinion during the third quarter of 2015.

The effect on rents

While commercial landlords may welcome the prediction that rental prices will rise across the board, it’s important to consider the impact this could have on tenants’ ability to pay. Landlords should prepare for the possibility that tenants will default on their rent instalments by future-proofing their finances. Dukes Bailiffs can help by securing cash flows and eliminating commercial rent arrears in a sensitive and professional way.

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