Decline in new construction activity but some sectors show signs of resilience

New construction activity fell back sharply in the wake of the Brexit vote, according to the Q3 2016 JLL and Glenigan UK Commercial Construction Activity Index. The Index highlights that construction activity for the 12 months to September fell by 12.4% compared to the total for the previous quarter, However some sectors remained resilient, particularly hotels and healthcare.

Despite the decline in activity, the Q3 commercial construction picture contains mixed messages and from an alternatives sector standpoint was both buoyant and positive. Construction activity in the hotels market continued to grow reaching £2.4 billion (up 3.0% q-o-q). Added depreciation of the pound against the dollar and euro is likely to mean further good news for the hotel industry, enabling the UK to be a more affordable destination for visitors. Other facets of the alternative sectors, notably healthcare, have also been less affected by the current uncertainty and activity within the sector for the 12 months to the end of September reached £1.9 billion (up 15.3% q-o-q). However it is undeniable that the wider market appears to be pausing while it tries to grapple with the uncertainty the referendum vote has produced.

Regionally, London and the South East totalled £10.6 billion for the 12 month period, which is down 3.4% q-o-q. Together, London and the South East region accounted for 55% of commercial construction activity, an increase of 5.0% compared to Q2 2016. Elsewhere activity increased, with Scotland up 1.0% quarter-on-quarter (q-o-q) and Wales (up 4.0% q-o-q), with a rise in new build starts recorded.

The focus on issues such as passporting for financial services implies that London, which is more dependent on this sector than the regions, may begin to see more impacts over the coming months – with the regions seeing more of a delayed effect. However, the government’s increasing focus on a more general regional policy concentrating on the North and Midlands will provide a welcome boost for commercial construction in those parts of the country in the longer term.