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The amount of office space in London available to tenants has declined for the first time in two years, according to a survey published by RICS today.

The institute said demand for business property increased in the fourth quarter of 2009, with office space and industrial property particularly popular. It is the second successive rise in tenant demand and the first upward trend since early 2007. On the downside, demand for retail space continued to decline.

Oliver Gilmartin, a senior economist at RICS, said: 鈥淪urveyors have turned mildly optimistic on the outlook for rents in London for the first time in over two years, outside the retail sector, as the capital continues to drive the recovery. While retail property has seen the strongest rebound since August it is lagging the occupier market turnaround.

鈥淗owever, the news that lease lengths are no longer declining in the capital and incentives are being scaled back for offices and industrials will come as some comfort for investors who have driven a sharp rebound in pricing since the Autumn.

Gilmartin said that for the rise in London capital values to be sustained there needed to be further rental increases, particularly as prime yields were approaching financing costs.

He said: "The reluctance of banks to lend to developers has clearly added some support to rents in London, as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back.鈥�