According to the Royal Institute of Chartered Surveyors’ (RICS) latest commercial property survey Q1 2010, there are signs of a turnaround in some sectors of London’s commercial property market which has pushed rental expectations for London offices up at the fastest rate in over two years.

For the first time since Q4 2007, rental expectations rose above zero for London offices as available space declined for the second consecutive quarter. The positive net balance of 57%, compared with the previous reading of zero, for central London office property was the biggest upward jump on record. However, for the rest of the UK, available space is still rising and rental expectations are still negative.

Lettings activity across office and industrial property continued to improve in the second quarter, although investment demand has moderated somewhat outside the London metropolitan area. The retail sector continues to languish, particularly in the Capital where rising space continues to weigh on rental expectations.

Although confidence in the outlook for lettings increased, sentiment was slightly less buoyant at the end of the fourth quarter of 2009. Some surveyors voiced concerns over the impact on regional lettings activity of public sector employment cuts following the upcoming election.

Oliver Gilmartin, RICS’ senior economist, said: “The latest results suggest that a still modest recovery in lettings demand has greatly lifted rental expectations for London offices where development has floundered in recent years due to a dearth in development finance.

“There are some signs that a lower pound and a gradual rebalancing of the UK economy towards greater export activity is starting to feed through into industrial lettings activity most notably in London and the South. Office lettings activity continues to rise modestly across the country although surveyors still remain cautious.”