UK commercial property demand sinks to five-year low as Brexit concerns mount

Demand to rent commercial property in Britain fell to its lowest level in five years in the second quarter, a survey by the Royal Institution of Chartered Surveyors (Rics) has revealed.

Some 2% more chartered surveyors reported a fall in demand across the country between the April and June period, the lowest reading since the third quarter of 2012.

The decline was mainly due to falling demand for office and retail space, although this was partially offset by growth in the industrial segment.

Tenant demand for retail space is expected to fall further in the coming months, as the rise in popularity of online shopping continues to hurt high street retailers.

At the same time, the shift towards online shopping is expected to help increase demand in the industrial segment, with surveyors reporting a squeeze in the supply for leasable space in this area.

"The commercial property market has enjoyed a good run and it's hardly surprising that we are now seeing a flatter trend emerge in the responses to the survey which chimes both with recent economic newsflow and the political environment," said Simon Rubinsohn, chief economist at Rics.

"That said, the underlying picture remains fairly resilient which is highlighted by the fact that medium-term rent expectations are still holding up particularly for prime space."

Tenant demand weakened across the East and South East of England during the second quarter, with both sectors posting a decline in net balance terms for the first time in five years.

Surveyors said they expected the demand for retail space to decline over the next 12 months in London, while demand for office space is expected to hold steady.

Respondents cited Brexit negotiations and political uncertainty as factors that posed downside risks to the outlook for the commercial real estate sector.

Some 17% said they had seen evidence of businesses looking to relocate away from the UK over the next two years as a result of Brexit.