Speculative developments boosting commercial sector in London and major regional centres
The latest Glenigan & JLL UK Commercial Construction Index reveals that London has reached the highest level of commercial construction since 2008, with activity totalling £7.4 billion in 2016 Q1.
The level of speculative office development under construction in Central London totalled 8.3 million sq ft at the end of Q1 2016, well ahead of the long term average (5 million sq ft) indicating that developers are continuing to respond to London’s burgeoning requirements for new office floor space. In the West End office market alone, construction started speculatively on nine schemes in Q1 totalling 596,997 sq ft; the highest level of commencements since Q4 2014. The largest starts were at Brunel, W2 at 241,000 sq ft, which is scheduled to complete in 2019 and The Foundry, W8, a refurbishment planned to complete by the end of this year totalling 110,000 sq ft.
Generally, the construction industry remains cautious. However a recent fall in costs has offered some rebound for the commercial sector. While total construction starts fell marginally this quarter, construction data on the whole remains volatile. Construction activity levels remain solid with London showing notable signs of resilience.
Additional key highlights from JLL and Glenigan’s Q1 UK Commercial Construction Index include:
- Commercial construction for the 12 months to the end of March fell to £23.0 billion, a fall of 7.2% on the previous quarter. The latest fall in overall construction activity mirrored the trend recorded for construction output with current Office of National Statistics (ONS) figures showing that construction output had fallen.
- The survey highlights a continued willingness to commit to the core sectors of office, retail and industrial, which together continue to account for over half of commercial construction activity. The offices sector regained some momentum this quarter with total starts of £4.9 billion up 21.1% compared to the previous quarter.
- As noted last quarter, strong underlying demographics have continued to drive appetite for alternative sectors, notably education, where activity increased 5.1% to £5.8billion.
- On the regional level, activity in London remains resilient with total commercial construction up by almost 20% compared to the previous quarter and 9.4% compared to levels seen one year ago.
- Elsewhere, Northern Ireland saw a 7.1% increase, albeit from the smallest base in the sample. Of the English regions, activity slowed particularly in Yorkshire & Humber. However this was mainly caused by an unusually strong Q1 2015 dropping out of the cumulative figures. During these three months £1.2billion of work started in Yorkshire & Humber alone, including work on the £600 million Victoria Gate retail project.
Construction activity is down on the annual and quarterly comparison, although activity levels are broadly in line with the long term trend over the last five years. Nevertheless, the pace of growth we have seen over last couple of years is beginning to moderate. This could be partly due to wider economic and political uncertainty but to some extent, growth will also be moderated by skills and resources shortages with workloads nearing capacity in some cases.
Nevertheless there are many reasons to remain optimistic; commercial construction activity in London and in many of the major regional cities remains solid. Major infrastructure projects such as Crossrail will also drive activity and with further projects in the pipeline there is positive momentum. New orders activity from the ONS also suggests there will be continued growth in construction activity this year with new construction orders for commercial property increasing by 62% (Q4 2015) from their lowest point in Q3 2012.
The full report is available to download here.