Businesses have continued to cut their property holdings by 12% in the past six months and further shrinkage is still expected over the next six months.
The view comes from a survey conducted by the CBI and GVA Grimley Corporate Real Estate.
The twice-yearly survey, conducted between August 26 and September 16, 2009, shows that while 12% of firms increased their occupied space in the last six months, 25% reduced it, giving a balance of -13%. This was slightly less negative than the expected balance of -25%.
The survey also reveals that a similar fall is expected in the coming half-year period (a balance of -15%).
The number of businesses considering exercising a break clause in their lease, which gives one or both parties the right to terminate a lease before it has ended, has increased.
Paul Taylor, automotive and roadside director at GVA Grimley, told AM: “Businesses have become a lot more cost aware. We’ve seen a lot of satellite sites or servicing hubs close in the smaller towns, but in terms of bigger distress sales the auto-motive sector has coped well.
“We’ve seen dealers using break options on their leases, but it’s to negotiate better terms rather than move on. It’s still a good opportunity to get a better deal from landlords.”
Taylor believes there will not be a huge amount of development activity next year as manufacturers are holding off on major projects and relocations until the automotive surfaces from the recession.
He said: “The biggest turnaround this year is that in the last four months investors are coming back to the automotive market and are interested in buying stock again.
"That’s been a staggering turnaround in comparison to earlier this year and it’s been driven by how badly other sectors have been affected.”
The GVA Grimley and CBI survey shows that financial services firms recorded the sharpest property contraction, with the engineering sector and transport, warehousing and distribution companies seeing the next steepest falls.
The sharpest decline in the next six months is expected to be in the financial services sector again.
Three sectors – leisure (including hotels, bars & restaurants), retail and construction – reported an increase in property holdings over the past six months and the same sectors anticipate a rise in the next six.
During the recession, cost reduction and cash flow remain the most important issues affecting companies’ property decisions.
Howard Cooke, corporate consulting director at GVA Grimley, said: “With little let-up in the impact of the recession, businesses have continued to reduce property holdings. These cuts will continue as long as the poor economic climate persists.
“Yet again, most firms feel some impact from the recession, with slightly more blaming tighter credit conditions than six months ago.”
The survey shows an increase in the number of companies that would consider moving at least part of their business abroad.
Almost a third (32%) said there were issues that would make them relocate away from the UK, a significant rise on 15% a year ago.
This time the two most important reasons for firms considering relocating were the tax system and the economic environment.