Is the Government building for the future?
A report by the National Audit Office (NAO) has shown the majority of government departments and agencies as failing to meet targets to make their new buildings and major refurbishments sustainable.
Chris Blythe, chief executive of the Chartered Institute of Building (CIOB) said: “Sustainability and the way we build the future is a serious issue and needs greater cohesion between the Government and the Industry. The report highlights that a lack of consistency and responsibility are part of the problem. The Government must create amore joined up approach to the construction industry, which is the only way we can successfully tackle these issues. We would question whether the current system is building for the future or just reading water.”
The report found that most departments have started to consider sustainability in construction and refurbishment projects. But departments are not consistently carrying out the required environmental assessments on new projects. In 2005-06 only 35% (37 of 106) of new builds and 18% (61 of 335) of major refurbishment projects had carried out, or planned to carry out, these environmental assessments.
The NAO, with the assistance of specialist consultants, examined a sample of projects that had not been assessed. Of these, 80% would have failed to meet the required assessment standards. But the report also identifies some examples of good practice, including the refurbishment of offices by the Department for Environment, Food and Rural Affairs, the refurbishment of the Treasury’s headquarters and Defence Estates’ construction of Welbeck Defence Sixth Form College.
Sir John Bourn, head of the NAO, said: “When I last reported on construction in 2005, I emphasised the need to consider both the costs and benefits over the whole life of a building, not just the initial capital required. Despite this, today’s report highlights a continuing failure by departments to consider the long-term value of sustainability in their new builds and refurbishments. This is particularly disappointing given the importance of sustainability in promoting a deeper understanding of value for money.
Government departments and agencies spend in the region of £3bn each year on new builds and major refurbishments. If sustainability is well handled, and addressed at the very beginning on construction projects, it can and should provide better value for money in the long term.”
Commercial Property Survey
Demand for commercial property accelerated at the fastest pace in seven years, boosted by a strong economy and record profitability, says RICS’ Commercial Property Survey published recently.
Business demand for commercial property picked up at he fastest pace in seven years with the retail sector no longer acting as a drag on overall demand. All sector improved for the first time in two years as 16% more chartered surveyors reported a rise then a fall in overall demand compared to 7% in the last quarter.
The East Midlands buck the trend in terms of demand in the office market. Nationally, demand accelerated in Q1 with the pace of expansion doubling to an all time survey high, 35% more chartered surveyors reported a rise than a fall in demand in the office market, up from 20% in Q4 2006. Chartered Surveyors in the East Midlands report a decline in demand of 17% between Q4 2006 and Q1 2007.
The retail and industrial markets continued to show improvement with surveyors reporting that demand in the retail market has stabilised for the first time in two years. Greater pricing power and firm high street sales have offset the impact of a strong pound and interest rate hikes on the retail and industrial sectors. Again, the East Midlands report a decline in demand in both these sectors.
Surveyor confidence in the East Midlands was optimistic across industrial and retail sectors, but showed a downturn in the office market.
East Midlands chartered surveyor and RICS commercial property spokesperson, Ian McRae said: “A strong economy and increasing profits have encouraged businesses to continue to seek business

premises across all regions of the UK. Any fears that commercial property investment would ease back have been unfounded with London leading the way with increased building.
“Despite interest rate hikes and a strong pound, high street sales have held their own despite increasing pressure on the retail sectors. Expectations for commercial property remain healthy even with a further rate rise looming.”
UK Investment Market
A new report from Lambert Smith Hampton (LSH) reveals that the value of UK property investment market transactions fell to its lowest quarterly level for two years in the first quarter of 2007, as the flow of stock onto the market eased.
LSH’s ‘UK Investment Transactions’ (UKIT) Activity Survey is published quarterly and is unique in looking at actual deals transacted, and therefore provides an accurate snapshot of the direction of the market.
The latest report, UKIT 2007 Q1, shows that yields, rent as a percentage of the price of a building, stabilised in the first quarter of the year, following an upward shift in the final quarter of 2006.
This is despite an increase in UK sterling and Euro SWAP rates, the difference between the forward exchange rates and the spot rates. The five year UK SWAP rate has risen by almost 30 basis points since the start of 2007, to now stand at 5.63%. The comparable Euro SWAP rate is also up some 30 basis points, to 4.26%, since the beginning of the year.
According to LSH, overseas investors have played an important role in the UK market over the first months of the year, filling the gap left by institutional investors, who typically allocate their property funds at the beginning of the year.
Another feature of the market in this period has been the level of activity by private UK companies, which have continued to commit considerable capital to the UK property market.
Ed Jones, director and head of investment agency in Lambert Smith Hampton’s Birmingham office said: “The slowdown in activity in the first thee months of 2007 has been noticeable, but the appetite for UK property from private investors has continued.
“The property cycle has been driven by the desire to buy into the market, but it is becoming increasingly difficult to find the opportunities where market pricing can be supported by property fundamentals, such as location, tenant covenant and quality of the building. Our experience is that that yields in core markets are holding, while yield on secondary stock are softening.”
The office sector saw the most significant downturn in activity. This was primarily due to the shortage of stock coming to the market. The Central London office market was typical of this, with total investment down to its lowest level since 2005, but yields continue to sharpen.
Meanwhile, the retail sector saw a return to favour, with a number of large scale transactions boosting overall activity. Transaction yields in the sector remained largely unchanged, with investors still wary about the prospects for retail property.
Overseas investors were the most active sellers of property claiming nine of the positions in the top sellers list. The main focus for overseas buyers and sellers was the office sector where the top five positions in the sector analysis are filled with non UK investors.
The hotels sector has seen a significant level of activity with over £3.2bn of property being sold in the past six months. The Largest transaction was the purchase of 41 Marriot Hotels by the Israeli company Delek Real Estate and other investors for £1.2bn. The vendor was Royal Bank of Scotland, which had purchased the hotels in early 2006 from Whitbread for £950m. The Marriot Hotels deal was the largest transaction but five other portfolios of hotels transacted with a combined value of £1.7bn.
Prudential was the largest institutional seller over the past six months selling a total of £568m of property. The sale of two office properties accounted for almost 50% of this total: the £155m sale of City Centre House in Birmingham to Scottish Widows; and the £110m sale of 3 Minster Count, EC3 to Spanish investor Santander Real Estate.