Demand for commercial property expected to slow

Demand for commercial property rose in the second half of 2002, but is expected to slow over the first half of 2003.

A report by the Confederation of British Industry and property advisers GVA Grimley shows 27% of companies increased property holdings over the past six months, while just 14% decreased them. This gives a balance of +13%, an improvement on the balance of +9% in the last survey.

Looking ahead, a balance of +5% points to more modest growth in demand.

However, the survey reveals the majority of growth has been concentrated in very few areas.

The report&#39s regional breakdown shows the increase in property demand is focused heavily on London and the South-East. Only two other regions, Scotland and the North, experienced an increase of any kind.

Northern Ireland, the eastern region, the South-West and Wales and the Midlands all experienced a decline.

Overall, service sector firms continued to take on more property holdings than those in manufacturing. During the past six months, companies in distribution and transport and communications reported the greatest increase, with these sectors also anticipating the greatest demand over the next six months.

A marginal increase in property holdings in the office sector of just 1% represented a marked slowdown compared with the last two surveys. Demand is expected to fall to -11% over the next six months, thanks largely to problems in the banking and finance sectors.

The retail sector is also pessimistic about the next six months. Demand is expected to remain broadly stable which is well below trend for this sector. A reduction in demand for manufacturing property is set to continue.

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.”

Doug Godden, CBI head of economic analysis, said: “The buoyant activity in the commercial property market in the second half of last year owes much to stable interest rates and the strength of the service economy.

“However, with retailers now joining manufacturers and office-based companies in cutting back on investment in buildings over the next 12 months, it is not surprising that overall demand for property is now expected to grow more slowly.”