Commercial development activity rebounds after two years of decline

Commercial development is on the rise at last after almost two years of decline, according to new data from Savills.

Its commercial development activity index for August data showed the first month-on-month rise since October 2007.

Activity increased in seven of the nine development areas monitored by the survey, with private sector retail and leisure and refurbishment activity the two strongest. The worst performing sectors were new build, which contracted for the 18th month in a row, and private sector office.

Around 21% of surveyors reported an increase in overall commercial activity in August, compared with 13% signalling a fall, creating a balance of +7.8%.

The rise in activity contrasted with sharp rates of contraction seen earlier in 2009. Savills said anecdotal evidence pointed to improved client confidence in the economic outlook driving a rise in new work, despite continuing tight credit conditions and weak tenant demand.

Optimism rose among commercial developers, with almost twice as many predicting a rise in activity over the next three months (23%) as those expecting a fall (12%). The resulting net balance of optimism, at +11.1%, was the strongest for two years.

Mat Oakley, head of Savills' commercial research department, said: “As sentiment about the prospects for the UK economy begins to improve, so does developer confidence. There are numerous political, fiscal and property challenges ahead over the next 12 months, but we believe that the environment for developers is beginning to look very attractive.”