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Commercial construction index reveals development market is still shaky17th July 2014

New commercial construction index reveals that shaky development market could hinder economic recoveryA new quarterly Commercial Construction Index, launched by property specialists JLL and Glenigan, has revealed that although commercial property development activity is on the increase, it is by no means yet at a significant level and in fact may prove a constraint to the UK's economy.

The index showed that work began on £22.7bn commercial projects over the past 12 months to June 2014, an increase of 6.6 per cent on the previous year. However, lack of development finance is still a problem. 

Jon Neale, Head of JLL’s UK Research team, said: “Despite these positive trends, the volume of commercial space being started has not risen substantially since the recession and is still significantly behind the position before the crisis. There is evidence of an increasing supply shortage, particularly in the office market, and the amount of development needs to accelerate if this is not to hamper longer term recovery.”

Refurbishment and extension projects, which are faster to turn around than new builds, saw a small increase of 8.7 per cent with a £10.8 bn market share. 

This is a reflection of increasing corporate confidence as companies upgrade their offices in a bid to drive productivity and retain staff.

The single strongest contributor in terms of location is London, which at £5.5bn, accounts for almost a quarter of the UK total. The capital is 27.2 per cent ahead of its position at the same time last year (2013).

Allan Wilén, Economics Director at Glenigan, said: “The English regions outside London appear to be the weakest contributors, with activity falling by 6.3 per cent over the period. Perhaps surprisingly, the Southern regions saw a greater slump than elsewhere; indeed, only Yorkshire & Humber (+7.8 per cent) and the East Midlands (+12.7 per cent) saw volumes rise over the year. On the other hand, Scotland, Northern Ireland and Wales have seen a strong recovery, albeit from relatively low bases.”

Tighter Government budgets has resulted in a reduction of public sector construction, which could account for regional construction inactivity. However, the regions are expected to improve over the next 12 months and cities such as Manchester, Leeds and Birmingham are already suffering from a shortage of Grade A office space and could be affected if development does not pick up again.

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