Commercial property occupancy rates rise for 7th year in a row, says Scope survey
Average letting rates rose for the seventh successive year in 2018, from 95.6 per cent in 2017 to 95.8 per cent, according to an analysis conducted by Scope into 15 open-ended retail real estate funds whose portfolios consist mainly of commercial properties.
Higher occupancy rates are partly the result of continuing high demand for rental space, particularly in European office markets, Scope Analysis noted in a commentary out today.
“Room for significant additional occupancy increases is limited. We expect occupancy rates to be stable over the year, but they will fall slightly in the medium term since numerous project developments have been acquired in recent years. They will be transferred to the funds over coming years and will only be fully let gradually after completion. In addition, falling demand for retail space may also have a negative impact on occupancy rates,” says Frank Netscher, associate director of Scope Analysis and co-author of today’s commentary.
Sonja Knorr, executive director at Scope Analysis and also co-author, says that letting rates have a strong influence on fund performance and are therefore key to the valuation of open-ended real estate funds.
“It is not just that vacant properties do not generate rental income; they generate additional costs, for example in renovation, marketing and incentives. One of the most important tasks of the fund management is to keep letting at a high level,” says Knorr. If the letting rate of a fund drops significantly, this has a marked negative impact on the fund rating.