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.

The pace of growth moderated last year was one of consolidation. However with the value of underling project starts growing by an estimated 13%, the pace of growth remained above the national average.

The flow of commercial office project starts cooled during the year. However, this is expected to prove short lived, with a strengthening development pipeline feeding through to a rise in project starts this year. 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. The Chancellor has added to the pressure on the prime residential market with the Stamp Duty reforms adding to the transaction costs of properties over £1 million. This will be particularly felt in the Capital where 6% of residential sales are in excess of a million, compared to 6% nationally. 

Nevertheless the overall prospects for the capital remain positive. The development pipeline continues to grow. This is forecast to sustain growth in project starts during 2015 and 2016, although following the double digit increases seen during the last two years the rate of growth will be more moderate albeit from a higher base.