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LONDON-The UK commercial property market has shown a significant slowdown, according to a new survey from agents GVA Grimley and the Confederation of British Industry.

The regular GVA/CBI survey has registered a reduction in the growth of demand for the first time since 1998 as the market starts to respond to the economic slowdown. And companies’ expectations for their property holdings over the next six months suggest a continuing slowdown.

Of the companies questioned, 29% said they had increased their property holdings over the last six months while 17% said they had reduced their holdings. The balance of plus 12% compares with plus 27% in the last survey in November 2000, and is the lowest figure since April 1997.

Over the next six months, 26% of companies said they expect to increase property holdings, while 20% expect to reduce them. The balance of plus 6% compares with plus 31% six months ago.

Sudhir Junankar, the CBI’s associate director of economic analysis said: ‘The growth in the commercial property market now seems to be moving down a gear. Optimism is falling and companies are expecting output to cool so, understandably, they are becoming more cautious about the future. Uncertainty about demand prospects and the return on investment are now the most important constraints on property spending.’

The effects of the economic slowdown are being felt more severely in some sectors than others. The industrial sector is far less strong than the retail and office sectors. Manufacturing recorded a balance of minus 8% while warehousing and distribution recorded plus 4%. Demand among retailers remains subdued at plus 8%, compared to plus 9% in the last survey.

GVA is forecasting a reduction in demand for offices in the coming six months, but an increase in activity in retailing. Stuart Morley, head of research at GVA Grimley, said: ‘With a marked reduction in business optimism and business output expanding more slowly, the survey results show occupier demand for property will weaken over the next six months. Most sectors, particularly industrial, will be affected, but demand for retail property is expected to improve in the second half of the year, no doubt reflecting buoyant consumer expenditure.’

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