Market bright spots temper a more cautious mood

Concerns over Brexit and the prospect of a slowing UK economy have inevitably created a more cautious outlook across the industry. But whilst the latest JLL/Glenigan construction index points to a dip in overall commercial work in the second quarter, it also shows activity is still expanding in the key industrial sector and that some English regions - notably the North East, Yorks & Humber and the South West - are continuing to see rising volumes. The latest Markit/CIPS purchasing managers’ index for construction points to an easing in the rate of expansion but it remains in positive territory, above the 50.0 level. The growth in new industrial work – which is reflected in a 32% rise in industrial project starts tracked by Glenigan in 2017 up to May - is being driven by strong investment in improved distribution and logistics/transport facilities as companies seek to cater for online business. Amazon is leading the trend and last month announced plans to build a major new distribution/fulfilment centre in Bristol next year - in addition to the four it has opened in the UK this year - where it will employ around 1,000 people. The health of the sector was also underlined recently in first half results from Segro, the leading quoted warehouse and industrial property developer. It said the outlook in its occupational markets remained broadly positive, given the continued shift towards online retailing, supply chain restructuring and the limited speculative supply of new warehousing in core logistics and urban locations. The group started the second half with 920, 400 sq m of buildings in its current development pipeline and a further 169, 400 sq m of pre-let projects in advanced talks. According to the latest JLL/Glenigan index, industrial activity rose by 18% to £1.4 billion in the 12 months up to the second quarter - compared to the previous quarter- and mainly due to a higher number of projects. The sector was also boosted by work starting on the expansion of GSK’s site at Montrose to create a £118 million manufacturing plant. Meanwhile, the index also showed that activity remained resilient in the hotels sector (which was virtually unchanged at £2.1 billion), in the medical sector (down by 3.1% to £1.7 billion) and the retail sector (down by 5.4% to £1.5 billion). Elsewhere, the overall picture was more mixed. The JLL/Glenigan index shows commercial construction activity fell to £13.7 billion in the 12 months to the end of Q2, down 9.3% on the previous quarter, although new build only dipped by 6% to £8.4 billion. Office construction was a significant factor in the slowdown, falling by 15% to £3.8 billion and education-related work fell by 21.3% to £2.7 billion. Across the UK regions, Yorkshire & Humber emerges as the most buoyant area in the JLL/Glenigan index with commercial activity more than doubling to £1.4 billion, up from £0.7 billion previously. The recent start of work on the £480 million Sheffield Retail Quarter and on the retail phase of a £400 million development at Thorpe Park has helped lift activity. Commercial activity also rose in the North East by 8.2% to £0.4 billion in the South West and by 0.9% to £0.8 billion. The picture elsewhere, particularly in London, points to cooler market conditions. The index shows commercial activity in the capital in the year to the second quarter fell by 20% to £4.1 billion and in the South East was down by 9.5% to £2.0 billion. Despite a relatively healthy flow of orders in the North West, the index shows that the region saw an 8.4% dip in commercial activity to £1.1 billion.