Retailers and restaurateurs are clamouring for space in the city centre despite Littlewoods pulling the plug on its Oxford branch.

The company told its 26 staff on Tuesday morning that the store would be closing down on August 7and that jobs would be lost.

Managers said they had to move out of the rented premises in the Clarendon Centre because the store was not meeting its targets and another unnamed company was interested in taking on the lease.

Shopper Joan Shewell, of Greater Leys, Oxford, said the loss of the store would mean less choice for customers. She said: "It's a shame because a lot of people shop here and it has a good range for more mature people."

Commercial lettings agents are reporting fierce competition for space, despite Oxford ranking 28th out of 30 in a recent survey of UK high street shopping areas.

The report, by property consultants Gerald Eve, claimed 75 per cent of Oxford retailers had reported a drop in trade over the past three years and blamed parking and access problems.

But Richard Dawtrey, head of commercial agency at Cluttons, said: "There are a lot of companies looking for prime sites and demand from restaurants is particularly high. We had 100 inquiries for a shop in Walton Street.

"Any shops that come up in Oxford, especially prime sites like Littlewoods, are being snapped up."

Mike Watson, commercial surveyor for FPD Savills, added: "Oxford is the most sought-after area for retail in the country. The demand is there - the trouble is that very little comes up."

London-based Capital Shopping Centres is planning a £220m redevelopment of the Westgate centre by 2009.

Oxford City Council planners said plans to redevelop the Westgate centre would address the city's retail space shortage.

But traders have described the demise of the Littlewoods store, which opened in 1964 and moved to its current premises in 1983, as a "wake-up call".

Graham Jones, a spokesman for traders' group Rox (Rescue Oxford), said: "If Littlewoods is only closing in Oxford, where it has a large store in a prime location, that sends out some warnings about the city.

"The Westgate expansion may take another five or six years. In the meantime, we have to make sure Oxford is as vibrant as it can be. We are just not competitive enough.

"There are not enough serious shoppers in Oxford because of access problems."

Mike Crabtree, of Shepherd and Woodward, said his trade had increased by 30 per cent since the store moved its schoolwear department to Summertown. The company's gents outfitters and academic wear departments remain on High Street.

Mr Crabtree said: "Lots of businesses open up in the city centre, but unless they are somewhere close to parking facilities, they quickly shut up shop."