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Can the increasingly buoyant commercial sector survive the recent stock market crash?

The latest figures from Glenigan show little effect during August but that is probably too early to provide any guide to whether developers will start stalling or shelving projects. More historic Department for Business, Enterprise & Regulatory Reform data reflect this strength in commercial orders as do the latest information on office take-up but clients will be unnerved by the central banks needing to pump money into the system.

Even before the problems with the US housing market sent the world’s  into turmoil, overall commercial development activity in the UK was subdued according to consultant Savills. This data is more recent than the office take-up info and showed concerns over the cost of borrowing money and how this may impact both on prospective tenants and also development of new projects.

These are certainly heady days for the industry with the latest joint state of trade survey from the Construction Products Association and the Construction Confederation but concerns remain in some sectors.

The private residential market is set for lower turnover and growth according to consultant Savills. Housing is a mainstay of the market and should both dip, then the current boom may falter but the severe under-supply in the housing market suggests any dip on the private side may be compensated for partly by the increasing spending on affordable housing. In the commercial market, there will not be any state intervention in such a real fashion and any fall-off would be much more severe.

July saw £9 billion-worth of building work thunder into the system at the early planning stage according to Glenigan – the highest total since May 2006. This surge in activity also showed up in the Chartered Institute of Purchasing & Supply’s construction index for July, which showed an improvement in operating conditions and activity growing at its fastest rate for seven years.

This boom is also extending to the value of work given the green light at the planning stage. In August, more than £1.4 billion-worth of work was recorded at the plans approved stage by Glenigan, taking this up to a level not seen since April.

The value of building work coming up for grabs reached its highest level this year in August, when EMAP Glenigan identified just short of £2.9 billion-worth of work at the tender stage.

This comes despite continued rises in tender prices with recent research from consultant Davis Langdon shows an increase of almost eight per cent in the second quarter of this year. A state of trade survey for the second quarter of 2007 from the National Specialist Contractors Council shows that 62 per cent of respondents reported rises in suppliers’ prices and the balance expecting tender prices to go up has risen from 22 per cent to 26 per cent.

Building orders totalled a record £5 billion in August after bumper months in the residential, commercial and education sectors. After retreating earlier this year, the  rolling total has risen for three successive months.

This spike is reflected by the Chartered Institute of Purchasing & Supply’s latest construction index, which shows that orders during July shot up at their fastest rate for a decade. Investment in the industry has never been higher according to the Construction Products Association and the industry’s capacity has grown by 10 per cent in the last two years.

Spending on residential work continued to revive in August, when a number of public sector frameworks pushed the monthly total to just shy of £2 billion. A weakening in the private sector looks likely as National House-Building Council information shows that first time buyers have never had a tougher time getting on the housing market.

That the public sector is driving this growth is evident not only in EMAP Glenigan’s project data but also Department for Business, Enterprise & Regulatory Reform statistics. Private housing continues to wane according to the DfBER and in the year to June 2007, orders fell two per cent on a year ago.

In the quarter to June 2007, orders were down six per cent on the same three months in 2006. In contrast, public housing orders are up four per cent in the last year and 24 per cent in the most recent quarter on a year ago.

Spending on industrial work has reached its highest level for over a year after EMAP Glenigan recorded £305 million-worth of work placed in this sector during August. This total included a number of major projects and several others are working their way through the pipeline according to EMAP Glenigan but whether they reach the tender stage may depend on how the recent stock market uncertainty affects developers.

Development of industrial and warehouse projects continued to expand in July according to the PMI commercial development activity index compiled for consultant FPD Savills but this growth was the weakest for two years. Evidence that the fillip in industrial orders has only been recent is provided by data from the Department for Business, Enterprise & Regulatory Reform, which shows private industrial orders down four per cent in the 12 months to June 2007 on a year ago.

Commercial orders have reached their highest level since November 2006 after EMAP Glenigan recorded £1.5 billion-worth of work placed. This rise is reflected in Department for Business, Enterprise & Regulatory Reform statistics for the year to June 2007 with commercial orders up eight per cent on a year ago and 22 per cent in the three months to June on the preceding quarter.

Take-up of empty office space in the City of London remains strong according to the Ingleby Trice Kennard (ITK) city floorspace survey but there has been a weakening in the fringes of the capital. In July, 593,357 square foot (55,122 square metres) of space was taken up during July – up 22 per cent on the previous month.

An average of nearly half a billion pounds worth of contracts for education work have been let every month for the last year according to EMAP Glenigan’s data. Average spending has been lifted to this figure after Glenigan recorded an all-time record monthly education orders total of £957 million for August.

 This bumper figure included a number of major projects, ranging from a £180 million Building Schools for the Future deal in Newcastle-upon-Tyne to an £80 million framework in Glasgow to a £40 million campus in Gillingham, Kent. This monthly total may prove a high point but more major projects are also working their way through the system and £252 million of education work was at the tender stage in August .

Average spending on leisure construction work has eased marginally after Glenigan recorded £115 million-worth of orders let in this sector during August. The dip in the 12-month rolling total is due to a strong orders figure in August 2006 and the overall outlook is positive with average orders up eight per cent on this time last year. Leisure activity in the public and private sectors is now expanding according to the PMI commercial development activity index compiled for consultant FPD Savils.