AN earlier-than-usual British budget has removed an important barrier to consumer and business activity, and pessimistic predictions for the budget have proved largely unfounded. Forecasts for 1994 now outline lower inflation, a firm pound and a fall in the budget deficit, although tax increases may limit the growth of consumer expenditure. Colliers Jardine research shows that commercial property will enjoy a knock-on effect from greater employment, especially as these rises should be mainly in the private sector. Commercial British property went from strength to strength in the fourth quarter of last year, drawing in a wide range of investors, about one half being overseas investors and property companies. London prices are about 50 per cent of 1989 values but now are rising, and companies have made considerable capital gains selling property bought in the past 12 to 18 months. According to Colliers Jardine British office, many investors are turning to property to bolster their portfolios, for despite property yields falling to an average of seven per cent, they are still well above stockmarket dividends and interest rates. Off-shore investment has been prompted by not only the low prices and attractive yields, but also Britain's unique long-lease structure with upward only rent reviews and tenant responsibility for repairs and insurance. A recent commercial building transaction by an individual overseas buyer was London Square, Guildford, for $36.1 million, achieving a 9.2 per cent yield. Supply, which has been drying up for the past five quarters, is limited by small amounts of new or refurbished space; the proportion of available core London space which is newly built dropped from 45 per cent to 36 per cent a year to September last year. This has not deterred investors, who have become more flexible by taking shorter leases and buying long-vacant properties. There are some signs that supply will pick up as institutions and property companies engage in more property swaps to try to re-balance their portfolios, and new development begins to gain momentum. Investment funding is now more readily available and a number of banks are participating in the market. Most interest has been directed at constructions at the GBP10 million (HK$115 million) mark, and outside that price region pre-let developments are demanded. From the peak of the office letting market five years ago, rental values have dropped between 30 and 50 per cent and even further in central London. In 1993, prime office rents declined generally, except in the stable West End and city, where few buildings stand empty. But the green shoots of recovery are becoming visible. The supply-demand balance is becoming more favourable, particularly for larger offices, and rentals should bounce by mid-1994. Colliers Jardine has already observed increased demand along major transportation networks and an encouraging interest in central London core areas. Any improvements in the rental market will affect investor activity significantly. But the possibilities of rental growth will put investments under a different light, encouraging investors to hold on to property, rather than selling out after making fast profits. Rick Williams is joint managing director of Colliers Jardine.