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Commercial construction sector

Moxon Street scheme at Marylebone

The commercial construction sector is finishing the year strongly but the near-term future is less certain as private sector developers move in different directions.

The November update from the IHS Markit construction purchasing managers’ index showed a “sustained” increase in commercial activity.

Glenigan’s construction market research has also identified a swathe of construction contracts awarded on major private sector commercial schemes.

The biggest was a £300 million deal let to Kier for the Moxon Street scheme at Marylebone in central London.

Capital focus

London is the focus for major commercial projects, and 40 schemes set to provide 4.2 million square foot of space completed in the last six months, according to Deloitte’s latest Crane Hire Survey for Winter 2018.

Mike Cracknell, a director at Deloitte Real Estate’s capital projects advisory team, explains: “This is the highest level of office space brought to market in over 14 years.”

Glenigan’s market analysis however shows a shift within the wider commercial sector away from offices in London.

Moxon Street will provide luxury flats, while big projects outside the capital are progressing. These include a £183 million deal to build Birmingham’s tallest residential block in Birmingham for

Moda Living, the Amex House office and residential scheme in Brighton and the £235 million Meadowside residential development in Manchester.

Top developers

Moda Living is the highest ranked commercial developer in Glenigan’s latest rankings of the industry’s top 100 clients.

Moda awarded £287.1 million-worth of contracts in the 12 months to November 2018 according to Glenigan’s market analysis, and is ranked in tenth place in the top 100.

The next highest developer is Derwent London after placing orders for £263.1 million-worth of projects. This includes the £260 million Soho Place development in London, which includes offices, retail space and a new theatre.

Overall, there are 18 standalone commercial, industrial and residential developers awarding work to external contractors in Glenigan’s ranking of the industry’s latest top 100 clients.
Those developers have let 136 contracts worth a total of £3 billion. This total compares to £5.2 billion in the previous year, although 2017’s total includes £1.6 billion from three contracts for the redevelopment of Battersea Power Station.

To appear in Glenigan’s top 100 ranking, companies must have let at least three contracts.

The Battersea Development Company did that and appeared but the biggest project let in the last 12 months did not as this was a one-off contract.

Sir Robert McAlpine is building the £1 billion Raffles scheme in London for a consortium of India's Hinduja Group and Spanish construction company Obrascón Huarte Lain.

Including this project swells the latest figure for commercial orders, but the overall total is still down on a year ago.

The future?

A hiatus in commercial work is emerging as changes in the sector emerge.

Glenigan’s economics director Allan Wilén says: “Last year’s sharp fall in detailed planning approvals has reduced the pool of projects in the pre-construction pipeline and is forecast to dampen commercial office starts during 2019 and 2020.

“More encouragingly the recent recovery in approvals during 2018 suggests renewed confidence among investors in the longer-term prospects for the sector and is expected to lift project starts over the medium term.”