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 in 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 expansion moderated last year, but with the value of underling project starts growing by 14%, the rate 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.

Many of these flagship projects include high spec residences which were likely to fall foul of Labour’s proposed ‘mansion tax’. The tax was proposed at a time when the prime London residential market had already started to cool and as the strong pound has begun to dampen interest from overseas buyers. While this possibility has since faded under a majority Conservative government, the Chancellor also added to the pressure on the prime residential market with previous Stamp Duty reforms adding to the transaction costs of properties over £1 million. This will be particularly felt in the Capital where around 8% of residential sales are in excess of a million, compared to less than 2% nationally. 

The overall prospects for the capital remain positive. We forecast growth in project starts will be sustained during 2015 and 2016, despite a recent dampening in new projects achieving planning approval. Following the double digit increases seen during the last two years the rate of growth will be more moderate albeit from a higher base.