The West Midlands office market is virtually becalmed despite hopes for an increase in demand in the long term, according to a new report from the CBI and property advisers GVA Grimley.
Demand for commercial property grew marginally more slowly over the past six months than expected and is predicted to stay broadly unchanged over the next six.
Nationally, demand for office property disappointed and remained broadly stable with a balance of minus three per cent. The outlook for the next six months is for a similar level of demand.
However, business optimism in the survey is at its strongest since May 2004, with six per cent of respondents more optimistic about the general business situation than they were six months ago.
Significantly for the West Midlands and Birmingham in particular, the most optimistic sectors are banking, finance, insurance and business services. Those in retailing, wholesaling and distribution are more pessimistic.
Ian Stringer, GVA Grimley's Birmingham-based national head of offices, said: "Here in the West Midlands we are renowned for our professional and financial services community - it is the largest in the UK outside of London, employing some 80,000 people across 600 companies.
"Naturally then, the news that the business services sector rates amongst the most optimistic in the country is encouraging. We anticipate that this will be an important driver in demand for office space, as office requirements generally grow in line with business expansion.
"Business optimism is also reflected in the staffing increases reported in the survey: employment is up by 12 per cent, above the long-term average of six per cent and up on the seven per cent six months ago. Couple this with the steady increase in output that has continued over the last six months and the longer-term prospects for commercial property are look-ing up.
"However, economic growth has recently been below trend and the short-term outlook is for this to continue. According to the survey businesses across the region generally are, therefore, slightly less optimistic about demand for commercial property over the next six months."
The twice-yearly survey of occupiers - covering offices, shops, factories and ware-houses - shows that over the last six months, 24 per cent of respondents increased their property holdings while 17 per cent reduced them. This balance of seven per cent was slightly less than the 11 per cent balance expected in the last survey six months ago, and also marginally below the long-term average of ten per cent.
Looking forward, demand across all property sectors is not expected to change in the next six months - 14 per cent predict they will increase their amount of property and 16 per cent expect to decrease it, a balance of minus two per cent. Sixty six per cent expect no change in their total property holdings.
Retail property saw the biggest rise in demand, with a balance of 15 per cent reporting an increase in their hold-ings over the past six months. Although this rate of increase is not expected to continue, six per cent of retailers still expect to increase their property holdings over the next six months.
The manufacturing sector continued to see a decline in demand for factory space - the last six months' balance of minus five per cent is below the long-term average of minus two per cent and the lowest balance since November 2002. Expectations are for a similar rate of decline, also below the long-term average.
B usiness output has increased at roughly the same rate over the last six months as it did over the previous half-year, with a balance of 22 per cent reporting an increase. A similar rate of change is expected for the next six months - though while retailers and the banking and finance sectors expect higher output, manufacturers predict a decrease.
Doug Godden, CBI head of economic analysis, said: "The fact that demand is predicted to stay flat over the next six months reflects the poorer expectations of certain sectors rather than stagnation across the board."