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Savills report highlights drop in confidence

Anticipations of commercial activity fell at their sharpest rate for 18 months in August as developers began to hesitate over new projects until the outcome of October’s Comprehensive Spending Review.

The Savills Commercial Development Activity report revealed a collapse in confidence, with the net balance of developers expecting an improvement in activity over the next three months dipping to -13.4 per cent.

This was down from -1.2 per cent in July and was the lowest reading since February 2009.

Refurbishment work was the only exception, with activity continuing to rise at a moderate pace.

Firms anticipated lower levels of activity in all areas of commercial development and were particularly downbeat about the outlook for office activity.

Concerns about the property market contributed to negative sentiment while some firms cited bank lending difficulties and worries about the wider economy.

Despite such negative sentiment, experts believe the Comprehensive Spending Review could end speculation and boost developer confidence.

Construction Products Association economics director Noble Francis said: “There are still concerns about a double dip recession - it’s unlikely, but still a risk. If anything, the CSR will provide a clearer picture of how the economy is likely to progress. With some assurance of growth, developers will start more projects.”

Savills head of building consultancy Michael Pillow said: “Increasing caution about the prospects for tenant demand and rental growth are weighing on developers’ confidence. Much of this is down to continuing uncertainty about the depth and scope of the imminent public sector spending cuts.

“While the news in October may not be good, the removal of uncertainty should deliver a boost to developers’ confidence.”

Almost 28 per cent of commercial developers reported an overall fall in activity during August, compared with about 15 per cent that signalled a rise.

As a result, the Total Commercial Development Activity Index - a net balance monitoring the overall performance of the UK commercial property sector - registered -13.3% in August, down from +0.6% in July and well below the +0.7% average for the year to date.