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Despite improvements in economic data and a moderation in the pace of decline in capital values in all world regions in Q2, rental expectations deteriorated further in Europe, according to the latest RICS Global Property Survey.

Western Europe was the only developed region where agents turned increasingly pessimistic with European countries dominating the bottom quartile in a ranking of over 50 countries worldwide. Some of the worst performing rental markets were Spain, Ireland and Scandinavia.

In the second quarter of the year RICS reported the sharpest declines in global commercial property rents in the survey’s five-year history, with Singapore, Ukraine and Spain leading the way.

Looking at the future, sentiment towards rents is particularly bad in North America but also in Croatia, Spain, Ireland and Italy, where available space has continued to rise. Although capital values fell at a lesser pace in most parts of the globe during this period, expectations towards commercial property prices are especially pessimistic in Spain, Scandinavia and the US, followed closely by the Czech Republic, Belgium and Italy.

Cyprus, the Netherlands, Portugal and Germany were the outperforming markets in Europe with less pessimistic expectations towards capital values.

While transactions activity continued to drop in most world markets, a few countries saw an increase in investment bidders per property with the UK leading the way. Despite this, surveyors predict capital values will continue to fall further in the coming months although at a slower pace.

Oliver Gilmartin, RICS senior economist, said: 'Rental declines will weigh on property pricing across many developed economies into 2010 as rising availability and weaker labour markets undermine a return to rental growth.'

The lettings market remains sluggish in Europe as evidenced by rising surveyor incentives across all 24 countries surveyed in the region. The upward yield shift appears to have run its course, however, in some markets, in particular the UK, Netherlands, Germany and Cyprus.

The dearth in global finance continues to impede investment activity with transactions in decline across more than 80% of countries surveyed. Higher yields for prime assets may be starting to attract interest particularly in economies such as the UK, the Netherlands and France where transaction activity moved higher.