Development work fell 10.3% last month – the first drop in 4.5 years in the commercial area

Commercial development activity in the UK declined last month for the first time in four and a half years, latest figures have revealed.

The data, compiled by estate agent Savills, is confirmation that the credit crunch has started to bite. Savills said a slowdown in work on new projects, increased borrowing rates and uncertainty about the economic outlook had all contributed.

The Savills total commercial development activity index registered a figure of –10.3% last month, compared with +8.4% in October. The index, which is a measure of the growth of overall development activity in the UK, has not been negative since May 2003, despite a slowdown in the growth rate as the boom in the commercial sector ended.

Developers surveyed by Savills remained pessimistic about the prospects in the next three months, with one-third of the panel expecting a decline from current levels.

The rate of contraction was sharpest for work on private sector projects, with one in four respondents reporting a drop in private sector activity. Almost 27% of commercial developers surveyed last month reported a drop in office fit-outs.

The decline was most dramatic in the office sector, where a fall in private sector office development brought to an end 50 consecutive months of growth.

There were also sharp declines in the refurbishment sector and public sector retail and leisure.

In refurbishment the 12.7% drop in workload meant that the figure was in negative territory for the first time in the 57 months for which Savills has run the survey. The only sector in which the level of activity did not decline was public sector new build, in which work remained constant.

London recorded a drop in commercial activity for the first time since August 2003, although the pace of contraction, –2.1%, was less dramatic than the overall figure. Worst hit was the rest of the South-east, which dropped 10.2%, while the rest of the UK dropped 4.9%.