The development of new workplaces, shopping centres and industrial facilities is playing an increasingly important role in the UK’s economic recovery, according to JLL and Glenigan’s inaugural Commercial Construction Index.

The quarterly index highlights that work began on £22.7bn of commercial projects over the 12 months to June 2014, an increase of 6.6 percent on the previous 12 months.

Construction had been underperforming as a component of GDP until relatively recently, but in the first quarter of this year, output rose by 1.5 percent, ahead of the overall increase of 0.8 percent. Annual growth stood at 6.7 percent, compared to 3.0 percent for the economy as a whole. These figures suggest that this trend will continue, although a possible slowdown in residential development may counterbalance this.

However, the index also highlights concerns that the development of commercial space is still lagging the UK’s booming economy – and could prove a constraint with time. Jon Neale, Head of JLL’s UK Research team, said: "Despite these positive trends, the volume of commercial space being started has not risen substantially since the recession and is still significantly behind the position before the crisis. There is evidence of an increasing supply shortage, particularly in the office market, and the amount of development needs to accelerate if this is not to hamper longer term recovery. Availability of development finance is still the major issue."

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Meanwhile, refurbishments and extensions (£10.8bn) saw a slightly larger increase of 8.7 percent which is perhaps unsurprising as these projects can be brought to market more quickly and with more certainty. However, most of the total is still composed of new build schemes (£11.9bn, up 4.7 percent).

Helen Gough, director of JLL’s Buildings & Construction team, said: "Rising corporate confidence means that many companies are looking to upgrade their workplaces. The corporate world is increasingly recognising that well-designed modern offices can be a key driver of productivity and staff retention, two major strategic concerns."

JLL and Glenigan’s Commercial Construction Index also shows that London is the strongest single contributor to the sector, accounting for almost a quarter of the UK’s total at £5.5bn. The volume of new construction starts continues to accelerate strongly, with the total for the capital 27.2 percent ahead of this point in 2013.

Allan Wilén, Economics Director at Glenigan, said: "The English regions outside London appear to be the weakest contributors, with activity falling by 6.3 percent over the period. Perhaps surprisingly, the Southern regions saw a greater slump than elsewhere; indeed, only Yorkshire & Humber (+7.8 percent) and the East Midlands (+12.7 percent) saw volumes rise over the year. On the other hand, Scotland, Northern Ireland and Wales have seen a strong recovery, albeit from relatively low bases."

The slump in regional activity may be a temporary trend produced by the reduction in public sector construction activity resulting from government austerity. However, recent statistics demonstrate that the recovery is certainly not confined to London. JLL and Glenigan expect the index to demonstrate an improving situation in the English regions over the coming year.

Indeed, cities such as Manchester, Leeds and Birmingham – as well as the ‘Greater South East’ – are already starting to see a shortage of grade A office space, and their revival could be affected if development does not gain pace.

(MH/IT)