Featured Region: London

The Capital has led the recovery in both the wider economy and the revival in construction activity over the last two years. Indeed 2013 saw London race ahead of the rest of the UK in terms of house prices and commercial demand, while Glenigan’s data on project starts also showed rapid growth construction activity, with a 21% rise in underlying project starts that left the value of starts a third higher than the previous peak in 2007.

However, the current year has been one of consolidation. Whilst London house price inflation now appears to be cooling, the flow of underlying project starts has also steadied with the growth in starts slowing to 6% during the first eight months of 2014.

The flow of commercial office project starts has also cooled this year. However, this is expected to prove short lived. Rising demand for office accommodation as the economy continues to grow is set to prompt increased investment in the development of prime office space and the current year has already seen a strong rise in planning approvals.

There has also been a sharp rise in detailed planning approvals for residential schemes, with a number of high profile schemes securing permission. However, many of these flagship projects include high spec residences that are likely to fall foul of Labour’s proposed ‘mansion tax’. The tax is being proposed at time when the prime London residential market has already started to cool and as the strong pound has begun to dampen interest from overseas buyers. Accordingly there is a risk that the tax proposals will prompt developers to appraise the financial viability of planned schemes.

Nevertheless the overall prospects for the capital remain positive. Whilst 2014 will be a year of consolidation in term of project starts, construction output is continuing to strengthen, driven by work generated by the marked increase in project starts seen last year. Furthermore the development pipeline is continuing to grow and this is forecast strong growth in project starts during 2015.