The ONS’s initial estimate shows that UK GDP declined by 0.3% in Q4 2012, which was in line with expectations following a weakening of some of the key survey data. This means that GDP growth for 2012 as a whole was flat, although as has been the case throughout the year, it is likely that both the Q4 and 2012 figures will be revised upwards by the ONS in their subsequent data releases. Nevertheless, 2012 was a poor year for the UK economy and the worst since 2009, at the height of the financial crisis.
However, most forecasters agree that 2013 will be a better year: Oxford Economics expect that the UK economy will grow by 0.9%, with the rate of growth picking up especially in the second half of the year. The Funding for Lending scheme looks to be having a positive effect on the availability of credit, a lack of which has had a downwards effect on growth, and the crisis in the Eurozone has subsided, although there remain significant issues with the performance of the Eurozone economies.
In the short term though, prospects are mixed. January’s cold and snowy weather could have a depressing effect on growth: the monthly retail sales figures show a sharp drop in spending (after seasonal adjustments and inflation has been stripped out) in comparison with December. Meanwhile, the PMI manufacturing index is at its lowest level since July 2012 and did not increase in January as had been anticipated. On the plus side, the most important part of the economy, the services sector, does look to be returning to positive growth: January’s PMI survey was indicative of this and the forward looking business confidence measure in the same survey data was at its highest level for eight months.
The property market
In the occupier markets, Lambert Smith Hampton data shows that take-up of both office and industrial space fell in 2012. The squeeze was most keenly felt in the industrial markets, where demand fell by 25%, to 76.1m sq ft – the lowest level seen for a decade. The decline was a result of a decrease in take-up of grade B and C space and take-up of grade A space actually increased in comparison with 2011.
Even though take-up fell in 2012, industrial availability levels have also continued to fall, a trend ongoing since the peak in the market in 2010. The strong demand for grade A space means that the availability of the best quality space has fallen to its lowest level since 2007.
In the office market there was a less significant drop-off in take-up of space in 2012. Demand fell by just 2% in comparison with 2012, but at 19.8m sq ft is still below the ten year market average of 21.5m sq ft. Unlike the industrial market, grade A take-up fell last year - by 35% - making up 30% of the annual total instead of 2011’s 44%. On a regional basis, annual take-up increased in the North, Midlands and Scotland, but decreased elsewhere.
Overall office availability declined fractionally through 2012, to finish the year 1% down on the end 2011 number. Grade A availability fell by 3% to 15.5m sq ft and accounts for 27% of the total market. Looking at the regional split, vacancy rates decreased in most markets with the exception of Central London and the office markets in the Eastern region.