UK Commercial Construction Activity Index dips

The latest Glenigan / Jones Lang LaSalle Commercial Construction Activity Index for the 12 months to the end of June fell to £22.1 billion, down 3.7% on the previous quarter. This is in contrast to the robust level of activity witnessed last year when annual activity peaked at £26.1 billion, the highest point since 2008. The Index covers the 12 months running up to the EU referendum. The political and economic context is changing rapidly following the UK’s vote to leave the European Union. While the political landscape has cleared to some extent over recent weeks with the appointment of a new prime minister, the shape of the post-Brexit settlement will take several years to become clear. The current economic risks revolve around that uncertainty and Glenigan & JLL anticipate construction activity will be disrupted as a result. The medium to longer term picture depends on how negotiations proceed and are resolved. Such a significant change and a lack of clarity around the type of Brexit settlement will inevitably create uncertainty for the construction industry. While this is likely to fuel growing risk aversion towards new build development, it will create an opportunity for strategic refurbishments, given replacement rates are generally expected to slow. In the short term, uncertainty is likely to deter developers from commencing new speculative office schemes or high density residential schemes without firm commitments in place. Alternative and logistics sectors are expected to show greater resilience given they benefit from structural and demographic trends, such as the ageing population and the shift towards on-line retail, which are independent of short-term economic conditions.