The latest RICS Commercial Market Survey has found that demand for commercial property is continuing to fall.

Occupier demand fell for the second consecutive quarter in Q3 2010, although the net balance was slightly less negative at -7 compared to -9 in Q2. Demand for office space showed the greatest decline, falling to -14, after growing to +19 at the beginning of 2010.

RICS members have reported that worries about the state of the economy have brought about an increasingly cautious attitude from firms when making investment decisions, which is impacting heavily on the market.

Supply to the market continued to increase at roughly the same pace as previous three months. The biggest rises occurred in the Midlands and the North, while available space broadly stabilised in London and the South West. Office space increased at the greatest pace with 23% more chartered surveyors reporting a rise than a fall in availability. By way of contrast, the amount of retail space fell in the South West and South East for the first time since 2005.

Surveyors’ expectations for increased supply and weaker demand impacted on their outlook for rental growth, with 16% more anticipating rents falling rather than rising over the next three months. Expectations for Central London office rents stabilised after increasing in Q2, while industrial rents in the capital also broadly stabilised. Elsewhere however, rental expectations dropped across the office, retail and industrial sectors.

Investment purchases in property also declined over the past three months, with 12% more surveyors reporting a fall than rise in purchases of commercial real estate. Significantly, softer investment demand for office and industrial real estate saw capital values fall back for the second consecutive quarter, with only London seeing rises in values.

Simon Rubinsohn, RICS chief economist, said: “We are seeing a mixed picture for the commercial property sector across England and Wales. The year started positively