Commercial developers saw another sharp decline in overall activity during December as weak business sentiment and tight credit conditions continued to have a negative impact on demand.

Weakness in private sector demand is said to be behind the sharp reduction of commercial development in December, according to Savills Total Commercial Development Activity Index.

It found exactly 54% of the survey panel reported a fall in activity, compared to less than 5% that indicated an increase. The resultant net balance, the Total Commercial Development Activity Index, posted 49.7% drop in December, up fractionally from November’s record low of -50.3%.

Private sector activity fell at a much faster pace than public sector commercial development at the end of 2008. Data indicated that the weakest performing areas of activity were private sector new build and retail & leisure development.

The slow down in activity can be seen as positive showing developers are not pushing ahead with schemes that will be difficult to let in this current climate.

Previous recessions had been characterized by property developers continuing to develop schemes into markets where there is no demand.

The report found that the degree of negative sentiment about the three-month outlook for activity was unchanged in December, and the joint lowest in almost six years of data collection.

Commercial developers were most pessimistic about industrial/warehouse activity, with the three-month outlook the weakest in the survey history.

Mat Oakley, head of Savills' commercial research department said: ‘While the noise about the recession has probably drowned out any relief at the falling cost of money, there are signs this month that activity and confidence may have reached their nadir. We expect both to improve in 2009, though the recovery is likely to be back ended to the second half of the year.’