Commercial property demand to carry on growing

Occupier demand for commercial property is expected to be sustained even though confidence about the general business climate has slipped.

That is the main finding of a report by the CBI and property advisers GVA Grimley published on December 16.

The twice yearly survey – covering offices, shops, factories and warehouses – shows that 15% of companies increased their property holdings over the
last six months while 9% decreased them.

The balance of plus +6% is slightly down on the +9% of the previous six months and below the 10% that had been expected.

However, demand is expected to go on growing at a similar rate despite deepening concern about the wider economy.

Over the next six months a balance of +6% of companies expect to increase their property holdings. That is the same net balance as over the last
six months and slightly below the survey’s 10-year average.

Looking ahead the main sectors planning the biggest increases in the property they occupy are banking, finance, insurance and business services, which all
expect solid growth with a balance of +16%. Sectors planning to shrink their property portfolios include distribution, hotels and retailing.

Stuart Morley, head of research at GVA Grimley, says: “Occupier property demand is expected to rise at the same rate over the next six months as over the
last six months, despite a deterioration in business optimism and an anticipation of weaker economic output growth.

“Stronger employment growth is expected to offset weaker output growth, particularly in the finance and business services sector which is good news for
the office sector.

“Stronger office and retail demand from occupiers is expected to offset weaker manufacturing and distribution demand.”

Concerns about the impact of rising fuel prices, interest rates and slowing consumer spending have undermined confidence.

One fifth of companies said they were more optimistic about their business than six months ago but 35% said they were less.

The balance of -16% is the weakest since the May 2003 survey and compares with +42% in the previous survey.

Output growth is expected to be significantly weaker.

The balance of +13% of businesses expecting output to grow is well below the long term average of +37% and the +47% reported in May.

However, after falling during 2003 and remaining broadly stable over the last six moths employment a balance of +8% of companies now expect employment
to grow over the next six months.

CBI head of economic analysis Doug Godden says: “Cost pressures from rising interest rates, oil and commodity prices have reduced optimism compared
with six months ago and that is having some impact on the of demand for commercial property.

“Demand growth has not stopped however. We are seeing an orderly moderation rather an abrupt slowdown.”

Over the last six months demand for shops and offices grew quickest, but by less than the ten year average.

Both sectors saw an improvement in demand
compared with the previous survey and expect to increase holdings at a faster rate over the next six months.

Demand for warehousing grew almost as quickly but is expected to slow.

Demand for factories barely grew at all but this was an improvement on the decrease seen in the previous survey. Over the next six months no growth at all is expected.