Office glut brings pain for landlords

CITY landlords should brace for a drop in rents with the offices market set for only a gradual recovery, surveyors have warned.

The London office market is showing early signs of stabilising, the Royal Institution of Chartered Surveyors says today in its second-quarter review.

But there was little evidence of a recovery in the overcapacity of floor space, led by the poor health of the office property market.

The pace of growth in overcapacity in the first half of 2003 topped that for the second half of last year. The institution said 38% of surveyors expect a fall in rents and only 3% a rise.

'Any recovery in activity is likely to be very gradual as business confidence has only shown a limited bounce back in the post-Iraq war period,' RICS added.

With the market favouring tenants, landlords face the prospect of granting ever shorter lease lengths and greater rent-free periods to lure occupants.

New enquiries for commercial property - industrial, retail and office - fell for a fifth quarter, but less than in the early part of the year. Around 12% of surveyors reported falls, compared to 19% in quarter one, the institution added.

The London office market saw a 4% slide in enquiries, the smallest drop of any region in England and Wales. That compares with a 32% drop in the first quarter.