UK office market 'to weaken'

Demand for retail space is set to increase further

Demand for commercial property in the UK is expected to slow during the next six months, in a sign that it is still too soon to count on an economic recovery.

In a joint report, the Confederation of British Industry and property advisors GVA Grimley said that, while a positive balance of 22% of firms have bought more property during the last six months, this is expected to fall to 12% by June 2002.

The strength of the commercial property market closely reflects the health of the wider economy, with fast-growing firms moving into larger premises when times are good, only to move out again when things turn sour.

The twice-yearly survey also shows that two thirds of businesses are less optimistic than they were six months ago, against just 7% describing themselves as more optimistic.

Jobs to go

A majority of firms added that they expect to lay off staff in the coming six months, reinforcing predictions of a rise in unemployment.

"Business optimism continues to fall as a result of growing uncertainty about the scale and extent of the economic slowdown, and demand for property will weaken again over the next six months," said CBI economic adviser Ian McCafferty.

Retailing is the only sector expected to show continued expansion over the next six months, with most others expected to decline marginally.

The sharpest declines in property demand are expected in London and the south-east of England, while the highest growth rates are foreseen in the south-west, Wales and Northern Ireland.

Resilience

However, the latest survey also shows that demand for commercial property during the last six months was unexpectedly strong, wrong-footing widespread predictions of a slowdown.

The residential property market is also forecast to soften in the first half of next year, with the double-digit house price inflation of the last two years expected to fall to more sustainable growth rate of around 5% a year.