Confidence levels among businesses in the property sector have dropped for the first time since the beginning of 2010, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).

The survey which tracks the confidence levels of UK finance and business professionals, shows that in Q4 2010, only 43% of those in the property sector are more confident in the economic prospects facing their organisation over the next 12 months, compared to the previous 12 months. This figure is down from the 57% who responded in Q3 2010. 26% are less confident about the coming year (14% Q3 2010).

Overall, UK business confidence fell sharply in most industry sectors this quarter with a significant drop in Manufacturing and Engineering (+34.6 last quarter down to +16.5 this quarter). The Property sector recorded a Confidence Index* of +8.3 points in Q4 2010, a significant drop from +25 in Q3 2010. The size of the drop may be in part due to last quarter’s Index being buoyed by optimism that the recession, and its negative impact on house prices, has passed. However continued tight credit is likely to have contributed to the dip in confidence as the number of mortgages approved each month remains low. The national Index also fell significantly from 21.5 in Q2 2010 to 11.9 this quarter.

Clare Hartnell, Global Head of Property at Grant Thornton said: "The recession saw property companies tighten up their corporate structures to increase efficiency and enhance their chance of survival. These newly svelte companies are now battening down the hatches to ride out the rest of the recession, particularly in the face of falling house prices.

"Access to finance also remains difficult and, as a result, house prices cannot increase as this naturally dampens the level demand in the market. Consequently the mood in the market is cautious and confidence for the next twelve months amongst property companies has diminished."

Property businesses expect relatively weak financial performance over the coming 12 months. Turnover is expected to grow by 1.8% and gross profits by 1.5%. In the pre-recession era expectations for annual growth of 5% - 7% were typical.

The weakened Confidence Index across the economy comes as BCM also indicates a weakening in customer demand. 44% of businesses across all sectors report customer demand as a greater challenge than 12 months ago, up from 37% in Q3 2010. Among property companies, the proportion reporting this trend has risen from 26% in Q3 2010 to 36% this quarter.