Urbanest- City’s 35 Vine Street. Image Source: Roman Wall House
The UK political scene might appear chaotic but a series of economic and financial signals emerged in the run-up to Christmas which offered some grounds for encouragement for the construction industry in 2019.
Business and consumer confidence may well remain fragile in the new year. But the economy is still set to grow in 2019, interest rates are likely to remain low and inflation is set to ease towards the Bank of England’s 2 per cent target.
A year-end report from KPMG forecast that the economy will grow by 1.6% in 2019. Moreover, overall investment which slumped to just 0.3% in 2018 is forecast to rebound to 1.6% in 2019 and 1.7% in 2020. This in turn should help recovery in the industrial and commercial construction sectors.
Promising signs in the City
Indeed, the latest JLL/Glenigan UK Commercial Construction Activity Index shows that industrial starts were up 18% and office starts were up 13.5% in the third quarter compared to the previous three months. Overall, the index shows work started on £18.3 billion of commercial construction projects in the third quarter, an increase of 1.2% on the previous quarter and up 24.1% on the same time last year.
The City of London office construction market is one key sector showing signs of promise. Savills’ latest City Investment Watch notes that 2018 has seen increased demand for more sites which offer value added or development opportunities, with six deals in the City in this category in November alone. It says that some 25% of the total City development pipeline for 2019–2022 is already pre-let.
A rebound in City construction volumes is also consistent with Glenigan Construction data which points to a marked rise in detailed planning approvals for office projects in London. They rose to around £875 million in the first 10 months of 2018, up from £660 million in the period in 2017. Construction work on one major City scheme, Urbanest’s £85 million development of office space with a café and student accommodation at 35 Vine Street, is due to start in the new year (Glenigan Project ID: 03446761).
Underlying health of private housing
Meanwhile, a combination of low unemployment – forecast by KPMG to dip to 4% - and interest rates going no higher than 1% in 2019 bodes well for the underlying health of the private housing market. After an 11% fall in the value of private housing construction starts in 2018, Glenigan’s latest Construction Outlook forecasts that they will only fall by a further 1% in 2019.
Confidence among the larger quoted private housebuilders appears to be holding up. Berkeley Group said in December that it had invested in 11 major new urban regeneration sites, all of them outside London. The group is moving into production on sites in Birmingham, Watford, Reading, Slough and Staines. It is also bringing forward new regeneration sites in the capital.
Meanwhile, in its final results before Christmas the quoted master developer Urban & Civic suggested the extension of Help to Buy to 2023 should help underpin demand for ‘entry-level’ new housing. It also pointed to evidence that first-time buyers were skipping the traditional first purchase of a one or two-bed flat and instead moving straight to a two or three-bed house.