No commercial property upturn

Recovery has not yet reached the commercial property market and there is no sign of it doing so in the next six months, according to the first of a series of half-yearly surveys launched today by the Confederation of British Industry and the prope rty consultants Grimley J R Eve - bad news for the office rental market and for the construction industry.

Output in the whole economy may be rising strongly, but demand for office and factory space is linked to employment rather than output, and most firms are not taking on more staff, according to Stuart Morley, Eve's resident economist.

Mr Morley admitted he had expected the survey to be more positive, although the CBI's own chief economist, Sudhir Junankar, believes that even three years into the recovery the situation is not unexpected, given the traditional long lag between the beginning of an economic upturn and a response from the property market.

Almost half the 329 businesses polled throughout Britain made no change in their property requirements in the past six months and have no plans for the next six.

However, 28 per cent took on more space in the past six months, and 22 per cent expect to do so in the next six. The demand that does exist is linked to the search for increased efficiency rather than expansion.

Smaller companies seem to be more optimistic than large ones, and the strongest demand has been in the Midlands, the North-west and Greater London, while Scotland and Wales have been retrenching. In the next six months, the North-west, North and West Midlands are most optimistic, while Greater London and East Anglia are pessimistic.

The strongest sector is retail property. Almost half the retailers expect to take on more space in the next six months, although 53 per cent say they are looking for out-of-town sites, where the Government is still trying to restrict expansion - five years too late to make a real difference, Mr Morley says.

Demand is weakest for office space, but the figures conceal a strong demand for new, well-equipped office space locally in short supply, and a continuing overhang of unwanted older, long-term vacant office space.

Nationwide, 41 per cent of companies expect to need less space over the next six months, and over half of those who are looking for more are seeking out-of-town locations.

It is, however, possible to reconcile the gloomy national picture with the rising demand for new office space in the City of London recorded by the agents Richard Ellis last week.

The survey, to be repeated every six months, is expected to provide a useful supplement to existing property surveys. Most concentrate on past and projected rent levels rather than the trend of underlying demand.