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26th March 2018
The Spring Statement might not have been exactly encouraging for construction but it did include some reassuring messages for the industry on the outlook for both public and private sector investment. The Chancellor made positive noises on housing and transport and the OBR has slightly upgraded its forecast for general government investment to 2.1% this year.
On housing, Philip Hammond noted that the government was getting on with the £44 billion investment programme to lift volumes to 300,000 by the mid-2020s. Forty-four authorities have bid for a share of the £4.1 billion Housing Infrastructure Fund and the Chancellor announced a further £1.7 billion for affordable housing in London. Meanwhile, talks are underway on city deals across the country; in Stirling and Clackmannanshire, Tay Cities, Borderlands, North Wales, Mid Wales, and Belfast and the government is inviting proposals from cities across England for an £840 million fund for local transport.
The outlook for private sector construction also looks slightly better in the light of the Spring Statement. Although the OBR is forecasting that economic growth is set to slow from 1.7% last year to 1.5% this year and to 1.3% in 2019, it is still predicting slightly better outlook for business investment, which it now sees as rising by 1.7% this year and 2% next. (The Bank of England is forecasting business investment will grow by 3% this year and 3.75% in 2019).
The picture is in keeping with the latest JLL and Glenigan UK Commercial Construction Activity Index for the fourth quarter. It points to improved sentiment across the sector with an increase in activity for the second quarter running, suggesting the sector has stabilised after the long decline seen since mid-2015.
Helped by an upturn in new offices, the Index shows that commercial construction activity grew by 5.5% last year to £15.5 billion and follows growth of 7.9% in the 12 months up to the third quarter.
After the dramatic falls over the past two years, new-build commercial construction appears to be picking up strongly, having risen by 6.7% last year to £10 billion, according to the Index. Growth in the fourth quarter was mainly driven by the office sector, which rose to £4.5 billion, up 11.2% over the previous three months as well as in the education, (up 12% to £3.5 billion) and community (up 19.9% to £0.6 billion) sectors. The industrial, retail and hotel construction sectors were stable although medical work saw a dip.
The picture in the regions also brightened in the fourth quarter with activity in Scotland picking up by 18% in the fourth quarter to £1.2 billion compared to the period a year earlier and helped by the start of Phase 2 of the Waverley office scheme in Edinburgh. In the North West, where work on the University of Manchester’s new research hub has started, activity also rose by 18% to £1.3 billion. Construction activity also rose in London by 10.1% to £4.5 billion in the fourth quarter, as work on Google’s new £1 billion HQ at King’s Cross got underway.
An improving outlook for the industry in the regions – particularly in offices - also emerges in a recent upbeat report on UK investment transactions from consultants Lambert Smith Hampton. This showed that investment volumes in commercial property in the regions outside London was the second strongest on record in the fourth quarter at £7 billion and took the annual total for investment in the sector in 2017 to £20.9bn, its best year since 2006.
Regional offices volumes in the fourth quarter were particularly strong at £1.5bn, almost double the quarterly average, which should in turn, bode well for new construction orders in the sector. Ezra Nahome, chief executive officer of Lambert Smith Hampton, said: “Judging by the tremendous finish to 2017, the market is clearly taking all the political noise and uncertainty firmly in its stride. The emphatic return of domestic investors also confirms that there is far more to UK property investment than a mere currency play in London.”
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