More construction developments required to solve office supply shortage

The development of new workplaces, shopping centres and industrial facilities is playing an increasingly important role in the UK’s economic recovery, according to the inaugural Commercial Construction Index by JLL and Glenigan. But the report raises concerns that the development of commercial space is still lagging behind the UK’s booming economy. Although the quarterly index reveals that work began on £22.7bn of commercial projects over the 12 months to June 2014, an increase of 6.6 per cent on the previous 12 months, Jon Neale, Head of JLL’s UK Research team warns that: “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.”

He adds that the availability of development finance is still the major issue. According to the Index, construction had been underperforming as a component of GDP until relatively recently, but in the first quarter of this year, output rose by 1.5 per cent, ahead of the overall increase of 0.8 per cent. Annual growth stood at 6.7 per cent, compared to 3.0 per cent for the economy as a whole.

Refurbishments and extensions (£10.8bn) saw a slightly larger increase of 8.7 per cent which is perhaps unsurprising as these projects can be brought to market more quickly and with more certainty. However, most of the total is still composed of new build schemes (£11.9bn, up 4.7 percent).

Helen Gough, director of JLL’s Buildings & Construction team, said:“Rising corporate confidence means that many companies are looking to upgrade their workplaces. The corporate world is increasingly recognising that well-designed modern offices can be a key driver of productivity and staff retention, two major strategic concerns.”

JLL and Glenigan’s Commercial Construction Index also shows that London is the strongest single contributor to the sector, accounting for almost a quarter of the UK’s total at £5.5bn.  The volume of new construction starts continues to accelerate strongly, with the total for the capital 27.2 per cent ahead of this point in 2013.

A slump in regional activity may be a temporary trend produced by the reduction in public sector construction activity resulting from government austerity. However, recent statistics demonstrate that the recovery is certainly not confined to London. JLL and Glenigan expect the index to demonstrate an improving situation in the English regions over the coming year.

Cities such as Manchester, Leeds and Birmingham – as well as the ‘Greater South East’ – are already starting to see a shortage of grade A office space, and their revival could be affected if development does not gain pace.