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News Release


Resurgence in commercial construction volumes continues in the regions

According to JLL & Glenigan’s latest UK Commercial Construction Activity Index


LONDON, 21 December 2015 – JLL and Glenigan’s Q3 2015 UK Commercial Construction Activity Index reveals that commercial construction for the 12 months to the end of September slowed to £24.1 billion (down 7.9% quarter-on-quarter/q-o-q). The lower volume was mainly caused by a reduction in office starts (down 35.1% q-o-q) and in London (down 30.0% q-o-q). However, this was largely a result of an unusually strong Q3 in 2014. During these three months, £2.1bn of work started in London offices alone. Nevertheless, total volumes are still 1.8% higher than at this point last year, driven by substantial growth in the industrial sector (up 26.7% y-o-y) and the education sector (up 22.0% y-o-y). The increase in new build starts also continued with volumes reaching £13.2 billion, 5.5% ahead of the same point in 2014.

Construction costs rose steadily throughout the quarter with leading building contractor order books remaining full and benefiting from a strong development pipeline. Helen Gough, lead director, JLL Buildings & Construction, said: “Capacity throughout key trades and supply chains continues to be one of the primary drivers behind construction cost inflation, despite improvements to underlying commodity prices, notably oil. Tier one suppliers are remaining selective in their bidding activity with low risk two-stage and negotiated appointments remaining favourable and key to securing contractor programme commitment and product quality.”

Helen Gough continued: “Construction forecasts will remain strong throughout 2016. This will continue to stretch the markets ability to deliver, particularly at short notice. Robust portfolio and project capital planning will be increasingly critical to businesses. In addition, we continue to expect markets to grow in line with stronger economic prospects, particularly in the regional cities and the South East over the coming years and certainly up to 2018. Our view on tender price inflation for the whole of 2016 is 4.5%, and then a drop to 4.0% in 2017 and 3.5% in 2018.”

Jon Neale, head of UK Research, JLL, added:“Commercial Construction Index illustratesthat theregional picture over the third quarter shows continued resilience, with Northern Ireland experiencing the biggest gains in construction activity, a 23.8% increase, albeit from the smallest base in the sample. Of the English regions, the East Midlands (+19.1%) was the strongest performer, followed by Yorkshire & the Humber (+11.4%). Volumes also increased in the West Midlands (+5.4%) and the North West (+3.4%). In contrast, volumes slipped back by 19% in the South East. In line with the previous quarter, these figures imply that the major urban centres outside London – Leeds, Greater Manchester and Birmingham - are continuing to see resurgence in construction activity. London and the South East however still represent around 40% of all UK construction activity, despite volumes slipping back to £9.5 billion.”

Allan Wilén, Economics Director at Glenigan concluded: “The strongest individual sector performer was education, which saw £6.5 billion of starts over the 12 months, a 4.9% increase on the £6.2 billion recorded in the Q2 figures. Industrial was up 4.8% to £3.3 billion and was also particularly active. In contrast, the core commercial sectors of offices and retail saw activity slow to £6.9 billion over the quarter (down 24.4% q-o-q). These figures tie in with estimates of Q3 GDP growth, which despite showing the UK economy expanding by 0.5%, suggested that construction output declined over the quarter. Nevertheless, with continued robust performance in the UK economy forecast for 2015 & 2016, we anticipate a return to growth in construction output.”

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