Commercial sector gloomy in UK but stronger in Eastern Europe

The amount of commercial development in the UK has fallen to its lowest level in five years, according the latest sector survey. But interest is strong in Eastern Europe.

Development activity is now at its lowest ebb since March 2003, says the latest Savills and NDC Commercial Development Activity Index. Around 28% of developers report a decline in development activity, with 12% signalling a rise.

This means that the Index, a net figure for overall activity, showed -16.4%, down from -6% in February.

Developers attributed the drop to tighter bank lending conditions and deteriorating market sentiment, as well as weaker growth prospects for the global economy.

Moreover, the Future Activity Index, an indicator of business sentiment, was -19.6% in March, down from -7.7% in February. March is the sixth consecutive month that developers have signalled that they are gloomy about future prospects.

Mat Oakley, head of Savills' commercial research department, said: 'March's survey showed no signs of Spring emerging in either developers' confidence or activity levels in the UK. While further base cuts are looking inevitable, the key issue for developers will be when these cuts begin to be reflected in the LIBOR rate.'

However the current market trends are not entirely negative. Supermarket giant Sainsbury's has signed up to anchor a regeneration project in Glossop, Derbyshire, for a mixed use scheme including restaurants, retail, leisure and residential units.

It is centred around the Sainsbury's store and the Woods Mill. The old mill is likely to be converted into housing.

Foreign investors remained the key driver of growth on the commercial property investment market globally, with a share of 94 per cent of total investment, up from 89 per cent in 2006. The most active players were from the US, Britain, Germany, Austria, Spain, Greece, the Middle East and Israel.

There is a lot of activity in Eastern Europe, especially Bulgaria, Romania and Poland. Griffin Property Finance (GPF), the first mezzanine fund for Poland's real estate market, plans to pump some €250 million into projects in Central and Eastern Europe, although its main focus of interest will be Poland.

European Future Group has teamed up with Apollo Real Estate Advisors to develop £261m office park in Kiev, Ukraine.