Grounds for optimism on commercial construction

Commercial building activity may have slowed in the wake of the cooling in the top-end London office market and caution over the economy’s prospects but with work set to start on a series of major projects, there are grounds for optimism across the wider construction sector. The latest JLL/Glenigan survey notes that the Market/CIPS construction managers purchasing index rose at its fastest rate so far this year in April, increasing to 53.1 from 52.2 in March. Although new commercial activity has slowed in London and the South East, key regional markets such as the North West and Wales have continued to expand. Overall, the JLL/Glenigan report shows commercial construction fell to £15 billion in the year to the end of Q1 2017, down by 9.7% on the comparable figure in the previous quarter. New build activity fell fastest, down 13.7% to £8.9 billion, although refurbishment was more resilient, falling by just 3%. The capital has seen the sharpest downturn with work falling by 20% to £5.1 billion, whilst the South East saw work fall by 13.9% to £2.2 billion. Nationally, new office work fell by 15.4% to £4.5 billion. Resilient education sector A resilient showing in the education sector - where activity only dipped slightly to £3.4 billion in the year to Q1 - has helped buoy up activity in the regions. In the North West, where activity rose by 23.2% to £1.2 billion in the year to Q1, the sector benefitted from the start of Manchester University’s Engineering Campus Development. Similarly, in Wales, where activity rose by 37.4% to £0.5 billion, work has recently started on phase 3 of a £135 million extension to Cardiff University. (However after a 22% fall in planning approvals for new education projects in 2016 recorded by Glenigan figures, it is not clear that the momentum in the sector will be maintained.) Elsewhere, commercial activity in Scotland, which dipped by only 5% to £1.5 billion, benefitted from the start of work on the refurbishment of 85,000 sq ft of office space at 1, West George St in Glasgow. The community sector has also stayed resilient, with work worth 0.5 billion in the year to Q1, up from £0.4 billion in the previous year. More community schemes in London and the South East and a £55 million project in Andover by the Defence Infrastructure Organisation have contributed. Wider variety of schemes The major property groups are responding to a slowing in London’s office market by pursuing a wider variety of schemes, often away from the capital. Grosvenor Group, which manages the Duke of Westminster’s estate and has a £6.6 billion development pipeline, recently pointed to a cooling in the London market. After ten years of reporting returns of over 10%, its total returns from Britain and Ireland recently fell to 0.3%. The group has been selling assets and investing in schemes it believes will mature in the next upturn. It has secured planning approval for retail, leisure and community schemes in London and is progressing major housing schemes in Oxford and Cambridge. Elsewhere, British Land has recently sold the City’s largest office tower The Leadenhall Building for £1.15 billion, having jointly owned and developed the scheme with Oxford Properties since 2011. New schemes where British Land has recently secured permission include a £400 million regeneration scheme in Kingston and it has recently started work on a £23 million leisure extension covering 66,000 sq ft which will double the amount of food and drink space at its retail portfolio at New Mersey, Speke over the next five years.