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Budget can be a tonic as offices sector slumps

Tom Fitzpatrick

Pity the economists trying to call the market right now. 

It’s why no one will criticise the Construction Products Association’s forecast for 2017-19 having a fair few ‘upside’ and ‘downside’ scenarios built in.

In these uncertain times, let’s give forecasters a little leeway. And let’s hope that the CPA’s report looks a little rosier as Brexit negotiations continue.

Overall, the association predicts construction output will be flat (0.0 per cent) in 2018 followed by 2 per cent growth in 2019.

The prime minister this week convened a housebuilding summit at Number 10 to discuss how to improve building rates (just weeks after making a demand-side policy, Help to Buy, one of the Conservatives’ flagship conference announcements).

Coupled with HS2 ramping up next year, it’s safe to say the association’s demand that private housing and infrastructure pick up the slack to avoid an industry decline next year will be met.

But one area we’ll be keeping a close eye on is the offices sector, where the upside/downside register could swing most violently.

Among the CPA’s forecasts was that office construction output will decline by 5 per cent in 2017 and a whopping 15 per cent in 2018, followed by a further 5 per cent fall in 2019.

Glenigan says there will be a fall in office starts of 5 per cent this year and 17 per cent in 2018.

As the CPA’s economics director Noble Francis points out, it’s worth comparing these figures with the financial crash for a little perspective (4 per cent output decline in 2008; 36 per cent in 2009 and a further 16 per cent in 2010).

The CPA forecast reflects a fall in new office orders in the second half of 2016 (19.7 per cent lower than the year before). There is plenty of activity on the ground at present, but with Brexit uncertainty, developers’ cyclical approach to the market and the effect of depreciation in the value of sterling thrown into the mix, things will start to look a lot leaner this time next year.

Investors await clarity on Brexit with baited breath, but Savills research already shows that office take-up in Greater London and the South-east in Q3 2017 was 40 per cent below the 10-year average.

David Davis et al will no doubt point to the soaring cranes as proof that business is booming. But with offices output set to fall, perhaps the non-civils industry should pin its hopes elsewhere? Rumours that the chancellor is flexing the public finances for a major social infrastructure spending spree in next month’s Budget could be quite the tonic.

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