UK construction and commercial property sectors remain stagnant

London commercial and office space outperforms

Article posted: 06 May 2011

Even with an increase of nearly 9% in construction out put in February the out look for the UK construction sector remains bleak for the remainder of 2011 according to the recent RICS UK economy and property chart book for May. The only light on the horizon appears to be the bouyant market for office space in the UK, particularly in Central London.

Insufficient supply is the major factor in the stagnation of the sector with sentiment for output price and jobs remaining in negative territory. The 9% rebound in construction in February was mainly driven by new work and repair & maintenance, and while the numbers seem positive the outputs are still only just at the levels of December when construction output was severely affected due to severe storms across the country.

Lending for construction was meager through February with the majority of lending going to civil engineering and commercial buildings. Adding further pressure to the sector, building material costs continue to rise recording an annual growth of over nine percent.

On the other side of the equation the commercial property sector has some signs of life even with a small dip in rents in March. Indications are that rents should begin to pick up in the latter part of the year. However this is a two tiered market both geographically and by sector; with London outperforming the rest of the UK and the market for office space in London doing far better than retail and industrial.

Commenting on the findings, Kaye Herald, RICS Oceania Managing Director said: “The UK still has some hard roads to travel before coming out of its current economic slump. Restricted lending and increase building material costs along with insufficient demand are holding back any form of short term recoveries in construction; however compared with other asset classes commercial property still remains an attractive offer for investors.”

For more information go to: RICS UK Economy and Property Chart Book May 2011

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Posted by Janet