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London non-residential market projects up 5 per cent but output in the regions slows

The value of the London non-residential construction market rose by 5 per cent in the 12 months to Q4 2014, while regional markets showed signs of stagnation.

The volume of non-residential construction starts for 2014 as a whole was only 0.5 per cent above the total for the 12 months to the end of the third quarter, according to The JLL and Glenigan UK Commercial Construction Activity Index for Q4 2014.

While the value of refurbishments and extension work dropped slightly to £11.0bn over the same period, the total value of new build projects was up by 1.8 per cent, growing to £12.7bn.

The total value of non-residential construction projects in London over the the 12 months to Q4 2014 grew to £6.3bn, up from £6.0bn in the 12 months to Q3.

In comparison, the value of projects in the West Midlands and the North east fell by 11.4 per cent and 1.7 per cent respectively over the same period, while Scotland dipped by 5.3 per cent.

Jon Neale, head of UK research at JLL, said that there was still a “very clear” north-south divide.

“The south has been much more resilient, and London still accounts for a third of total construction volumes, driven by office development,” he said.

“The momentum is with the South east.”

But there are signs that more projects will be brought forward in the North, especially the North west, which Mr Neale described as “the strongest market outside the South east”.

The value of non-residential construction projects in the north west was up by 1.7 per cent in the 12 months to Q4 2014, hitting £2.4bn - the third highest in the UK after London and the South east.

“Over the year we’ll see more construction projects elsewhere - if you speak to investors, and speak to people on the ground, there’s much more confidence and very little empty office space - projects will be brought forwards as a result”, Mr Neale said.

The office sector still accounts for the lion’s share when it comes to project value in the UK, making up £6bn in total in the 12 months to Q4 2014 - up from £5.7bn in the 12 months to Q3.

Education, the second largest sector, dropped by 4.6 per cent, falling from £5.3bn to £5.1bn over the same period.

Similarly, the retail sector took a significant hit, falling by 7.6 per cent, with the value of projects standing at £2.3bn in the 12 months to Q4 2014.

The hotels sector saw the largest increase, growing from £2.7bn in the 12 months to Q3 2014, up to £3.1bn in the 12 months to Q4 2014.

Mr Neale said that the sector was a “lumpy” one, but added that there has been “a better appetite amongst investors” for larger hotel projects.

The impact of austerity caused a hit on community projects, with values falling by 8.5 per cent.

Mr Neale said that more activity was expected in the offices sector.

“If you look at the pattern of construction projecs, we’re still low compared to where we were in 2008,” he said.

“We should be building more given the supply and demand dynamics in the market.”

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