Private-sector office activity boosts June development index – Savills

Construction activity in the private-sector office market is beginning to pick up, bucking the weak trend in other sectors, says Savills in its latest Commercial Development Activity report. Five of the nine sub-categories of commercial development reported growth in activity last month, with private-sector offices recording the strongest expansion. But the three public-sector sub-categories all reported accelerating declines in activity.

The growth in private-sector activity offset the contraction in the public sector, leading to a June net balance of +0.8% in the index for overall commercial property development activity compared with –3.4% in May. Around 22% of the developers surveyed recorded a rise in overall activity during June, compared with 21% reporting a fall.

The index tracking expectations showed a slight drop in confidence, with the three-month outlook for the UK commercial industry overall coming in at –1.4 for June, after +7.7 in May. About 18% of those surveyed expected activity to decrease during the next quarter, while 17% forecast an increase. Again, the restricted level of bank lending was cited as a key reason for a lack of confidence.

Michael Pillow, head of building consultancy at Savills, expects the improving trend in private-sector offices to be sustained as rental growth begins to recover in the best regional office markets, “though debt availability will remain a significant dragging factor,” he added.