The price of office rental space is on its way down, but with consumers on a spending, binge, the sky continues to be the limit for the barons of retail property

THE latest forecast from the Royal Institution of Chartered Sur-veyors (RICS) on the state of the commercial property market predicts that rents will fall this year.

According to the report, written by the Policy Unit of the RICS, the downturn in occupier demand has hit the office market by far the hardest. "We expect office rents to fall sharply in 2003, and show a further, albeit more modest, drop in 2004," it said.

Retail property, however, remains the best performer, as strong consumer spending continues to support demand for retail premises.

And although the slowdown in spending on the High Street will invariably effect demand for retail property, retail rents are still expected to rise by 3.3 per cent this year.

The report says "retail property will show the highest return of all the commercial sectors in 2003."

Andrew Kilpatrick, partner of commercial property agents Thompsons, based in Commercial Road, says inquiries have picked up since the end of the Iraq war but demand continues to be flat.

"There is activity, but sales and lettings are taking longer to conclude. Where there are building surpluses, property owners and developers are having to compete quite hard between themselves to secure a new tenant."

As for Swindon's retail sector, he claims uncertainty over High Street spending levels is keeping demand subdued, while in the leisure sector, he highlights the "unusual" sight of a vacant pub in Bridge Street.

"Not so long ago any such opportunity would have been snapped up almost as soon as it came onto the market," he said.

There was at present no great demand in the town's office sector, Mr Kilpatrick said.

Predictions for the year

Office rents will fall by 7.7 per cent this year, the biggest drop since 1993 when they fell 15.7.

Office capital values will fall by 5.2 per cent this year and show little change next year.

Retail property will show a total return of 14.2 per cent this year, the highest since 1997 when retail property showed a return of 16.4 per cent.

Industrial property will show a total return of 9.7 per cent in 2003, and 7.3 per cent in 2004, both below the 10 per cent return achieved in 2002.