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Construction activity still falling across the UK 1st October 2012


Economic uncertainty at home and in the Eurozone has led to further cautiousness from both developers and investors across the UK’s regional centres, according to research from Drivers Jonas Deloitte, the property and business advisory firm. The 2012 UK Cities Crane Survey monitors development in Manchester, Leeds, Birmingham, Glasgow and Edinburgh, with the latest results showing low levels of activity across all sectors. Just 25 new construction starts have been identified, a 36 per cent decrease on last year.

Anthony Duggan, head of research at Drivers Jonas Deloitte, said: “Overall, development activity in the UK’s regional centres is at a low level, a trend we do not expect to see reversed any time soon. Construction is a key indicator of the health of the economy; it is therefore not surprising that our latest Crane Survey has returned such muted results. Funding for development remains challenging, and with low occupier demand across most sectors the results reflect the challenges facing the construction sector.

“However, there have been a few positive signs of development activity, particularly in the education and student housing sectors, which have seen higher levels of construction activity over the past year.”

Office activity remains muted. The latest data records just over 1.1 million sq ft of office space currently under construction across the cities monitored. This is a fall of 3 per cent on 2011 levels and 74 per cent below the peak in 2007. Office-based employment growth has contracted in recent years, leading to low take-up volumes in 2011 and 2012.

“With little appetite for speculative development, pre-leasing activity is likely to be the key driver of any new office construction in the short term. However, low levels of construction over the past few years are now beginning to translate into reducing levels of available Grade A space. This shortage of new quality space could provide some upward pressure on prime rents, in turn prompting developers to begin to consider speculative development starts over the next 18 to 24 months.” said Duggan.

“Residential construction in the regional centres has clearly taken a hit during the economic downturn as a result of low demand and unstable property prices. Indeed a number of developers have publically withdrawn from regional activity to refocus construction on the more buoyant London market.”

One area of development that is seeing steady growth is the education sector, especially higher education. The latest Crane Survey results show a number of new starts and continuing schemes, ranging from bioenergy research buildings to learning centres.

With the redevelopment of university and student campuses, purpose-built student housing has also come to the fore in recent years. Interest in this asset class has been gathering pace and so too has construction activity. The Crane Survey has recorded schemes in the majority of the regional centres that have either started or completed development, showing a relatively buoyant market.

“Pressure on universities to justify increased fees and boost student numbers is likely to mean future investment in student housing development. The undersupply of purpose built student housing, particularly acute in Scotland but low across most university locations, is driving rental growth across the country.

“Although the student housing sector faces challenges, such as restrictive planning policies and availability of development finance, the pipeline looks healthy in the short and medium term. While the same cannot be said for all sectors, it is good to see some growth in a largely sluggish property market.”
 


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