Developers surveyed last month feel most pessimistic about new building activity for offices, followed by retail and leisure properties, consultancy Savills' Total Commercial Development Activity Index showed on Monday.
"A general collapse in expectations for the UK economy on the back of public sector austerity has clearly washed over into the development market," Michael Pillow, Head of Building Consultancy at Savills, said.
Britain's new coalition government has vowed to slash spending in a bid to drive down its deficit, compounding the grief in a sector already reeling from the size of its unpaid commercial mortgages and the reluctance of banks to lend more.
"We expect to see further caution about the future until the full details of the spending review are announced in October," Pillow said, adding the index showed firms on balance expect growth in the industrial and warehouse sectors however.
Savills said the July data had indicated a marginal rise in new commercial development activity, following a modest reduction in June, although this was propped up by the private sector as public sector development continued to fall sharply.