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Demand for commercial property in the UK is growing close to its fastest pace since 1998 and, along with a surge in investment, reflects the widening economic recovery, according to the latest RICS Commercial Market Survey.

In Q1 2015 the UK saw its 10th consecutive quarterly acceleration of demand for commercial properties, with 46% more respondents seeing greater interest. Interestingly, this points to stronger increases in employment with this series providing a two to three quarter lead on official jobs data compiled by the ONS (Office for National Statistics).

As availability declines (38% more surveyors seeing fewer commercial properties on the market), the impact of these tighter market conditions on rental expectations has resulted in them edging upwards to the highest headline-level reading since 1998. This is particularly apparent across the industrial and office sectors, while retail rental expectations continue to lag behind.

Looking ahead respondents expect, the office sector to perform most strongly with London leading the way despite increasing concerns over the valuation of prime property in the capital. Significantly, there is also increasing confidence that the more upbeat mood will impact on secondary space with rents and capital projections positive in all locations.

Simon Rubinsohn, RICS chief economist, said: “What is particularly encouraging is that a better tone to the results is visible in all parts of the country and increasingly in secondary as well as prime space. Given that these indicators have historically provided a strong steer as to the performance of the economy two to three quarters out, it is hard not to be encouraged by the conclusions of this report.

Mark Bladon at Investec Structured Property Finance, said: “This lack of supply is also having an impact on investment strategies with more investors looking at alternative opportunities in the search for more attractive yields. Student accommodation has long been viewed as an ‘alternative’ asset class but Investec believes it could be now be viewed as mainstream. We are also seeing consolidation in other alternative property sectors such as serviced apartments and retirement living, where yields are higher.  For momentum to continue, or for the alternative sectors to reach their full potential, the financing market will need to remain nimble and innovative in the face of these shifting trends.”