Commercial development declined in November for the first time in four and a half years, and the situation could get worse, according to research from Savills.

22% of developers reported a drop in activity in November, compared to just 12% that reported a rise.

The resultant net balance – the total commercial development activity index – was -10.3% in November, down from +8.4% in October. It is the first time the figure has been negative since May 2003.

Pessimism

Developers said that increased borrowing rates, a slowdown in work on new projects and uncertainty about the economic outlook were factors in the downturn.

Developers also said they were ‘pessimistic’ about the prospects for the next three months, with a third of the panel anticipating a further decline in activity. The report suggested that the credit crunch was a key factor leading to this negative sentiment, along with high interest rates and a downturn in new client enquiries.

Mat Oakley, head of Savills’ commercial research department, said: ‘It’s evident that the credit squeeze in particular is now impacting heavily on developers’ activity and expectations. The one possible ray of sunlight in an otherwise drab set of data this month is the December cut in the UK base rate. While this signals concern about the strength of the UK economy, the implied reduction in the cost of money should prove a spur to developers’ confidence in early 2008.’

The survey is conducted monthly by NTC Research on behalf of Savills.

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