The latest RICS (Royal Institution of Chartered Surveyors) global commercial property survey shows falling of tenant demand at a faster pace in the developed world in the second quarter of 2008. Tenant demand fell across all property sectors in the developed world. The retail market seeing the weakest tenant activities in the developed world, a pattern mirrored across most developing markets outside Emerging Asia where demand strengthened. Transaction volumes and capital values plummeted as the commercial property market suffered under financial liquidity constraints, says the RICS Global Commercial Property Survey.

Over 17% chartered surveyors reported a fall than a rise in tenant demand across the globe as the effect of the credit crunch deepened. The worst hit areas were North America, Australasia and Western Europe and to a lesser degree Developed Asia. In Western Europe, the net balance of surveyors reporting a fall in tenant demand fell to -27 percent from -22 in Q1, while in Australasia and North America it fell to -35.5 and -36 respectively. All sectors suffered with the retail market the most depressed area and the office sector dropping to a further low. Growth in purchasing activity continued its downward spiral with all regions outside Latin America either stagnating or declining. The weakest investment markets were seen in North America, Australasia and Western Europe. Of the more than 50 countries surveyed, 7 of the 10 worst performing countries are located in Western Europe with the most negative sentiment towards prices for Q3 expected in the Republic of Ireland and Spain. Hungary, New Zealand and South Africa were also found in the bottom 10 with the US only one place above the bottom 10.

Strongest Growth found in Middle East Regions

Office and retail rental prices experienced negative growth for Developed Asia while Middle East recorded the highest percentage growth in the past three months. The same trend prevails for capital values of office and retail properties in both Developed Asia and Middle East.

Hong Kong remains the No. 1 choice for investors

Among 10 countries / cities in Developed Asia, including Singapore, Japan and Korea, Hong Kong is the only city with positive investment bidder demand while all the other regions reported negative demand in Q2.

Looking in investment yields, Hong Kong ranked the third among the 10 regions with New Zealand ranking No. 1 and Japan ranking No. 2 in the same category. While quantity of development in the pipeline was measured, Hong Kong ranked second place right behind Singapore with the rest of the regions recorded minimal growth and negative growth. A rise in yields was recorded in emerging markets for the first time in the survey's history as aggressive inflation fighting in some emerging market locations has impacted upon commercial property pricing.

Weaker occupier demand has led to further rises in available space in the developed regions whilst declines in available space have now abated across emerging regions for the first time in the survey's history.

Major comments from contributors in Hong Kong and China

Benedict Ma of Knight Frank in Hong Kong commented, "The focus of leasing activity will likely be on Kowloon over the second half of the year, in areas such as Kowloon Bay and Kwun Tong, due to the completion of some 3.3 million square feet of new grade A office buildings in the areas. While rental growth will likely maintain on an uptrend due to low vacancy and continued economic growth, the rate of escalation will likely moderate."

Robert Walker of Macuarie Real Estate Asia Limited in Beijing said, "Olympics hosting means activity will be restricted. End of year will see more activity."

James Macdonald of Savills in Shanghai said, "Supply volumes in the Shanghai office market are expected to continue rising in the second half of 2008 forcing up vacancy rates and suppressing rental growth. Despite the office market looking as though it has come to the end of its late upswing and into its early downswing, investment demand for investment grade office properties remains strong."