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Commercial development 'lags behind booming economy'

The development of commercial property across the UK is “lagging behind a booming economy”, according to a new commercial construction index.

JLL and Glenigan’s UK commercial construction index showed that some £22.7bn worth of commercial projects started over the rolling 12-month period to Q2 2014, representing a 6.6 per cent increase.

However, this figure is still significantly behind pre-recession construction volumes, where commercial construction spending hit £36bn in Q1 2008.

Of the £22.7bn, refurbishment projects saw a slightly larger increase of 8.7 per cent to £10.8bn, which JLL said was “unsurprising” given an increase in demand and the need for space to be brought to the market more quickly.

New build accounted for £11.9bn worth of commercial schemes, up 4.7 per cent on the year to Q2 2013.  

JLL head of UK research Jon Neale said a lack of property development finance was still a “major issue”.

Speaking to Construction News, he said that before the recession a lot of investors were willing to take on more risk, with lenders investing in development.

However, property sector investors today favour standing stock or existing occupied buildings, he added.

He said: “The manner in which the lending market profile has changed is the problem.

“One would hope this will balance out and investors will start lending to development, but I don’t know whether that will help supply in the short term.”

JLL and Glenigan UK commercial construction index

Regionally, London accounted for nearly a quarter of the UK’s commercial projects at £5.5bn – the strongest single contributor for the 12-month period to Q2 2014.

The volume of new starts in the capital has continued to increase, with the value of commercial projects in London 27.2 per cent stronger than in the 12 months to Q2 2013.

The index estimates that London’s commercial output is 12 to 18 months ahead of the rest of the country.

Northern Ireland saw the strongest commercial increase of 209 per cent, but this was from a very low base. Wales and Scotland saw increases of 65 per cent and 15 per cent respectively, against 2013 figures.

Growth in English regions outside of London was weaker, with new starts and refurbishments falling 6.3 per cent over the 12-month period to £13.6bn.

The southern regions saw a slump, with starts down 11.6 per cent in the South-east and down 5.7 per cent in the South-west. The East of England was down 11.3 per cent, while Yorkshire and Humber was up 7.3 per cent.

Mr Neale said the regions would “revive” in the next six months. However, he warned there were challenges ahead – with capacity and the industry’s ability to respond to the growing need for supply, including Grade A office space.

JLL lead director of buildings and construction Helen Gough said there were notable skills shortages in curtain walling, mechanical subcontracting and brick and block concrete.

She added that contractors were being “a lot more picky and choosy” with the projects they entered.

On issues around access to finance, she said that one solution was to move into refurbishment, looking at the “quality of existing space and seeing how it can be improved”.

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