Commercial property demand to drop

The commercial property market is expected to weaken over the next six months in the face of declining business optimism and heightened economic uncertainty.

A report by the CBI and property advisers GVA Grimley shows that demand for commercial property will slow to a positive balance of just 5% over the next six months (28% increasing and 23% decreasing), compared to 13% in the last six months.

Over the next six months the retail sector is less optimistic than it has been for several years. A positive balance of just 2% of companies reported an increase in property holdings, a significant decline from 7% in the last half-yearly survey and 14% in the survey before that.

The slight overall increase in property demand was focused heavily on London and the South-East. Future demand is negative for all regions. Business optimism has declined markedly, with a negative balance of 29% compared with a positive balance of 23% in the last survey, and unemployment is expected to rise.

Stuart Morley, head of research at GVA Grimley, says: “A slowdown in property demand by occupiers over the next six months, particularly in the office sector, reflects increased economic uncertainty and reduced business optimism. Inadequate net return and uncertainty about demand are now the two most important constraints affecting capital expenditure on property.”