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Developers look for alternatives to create new construction opportunities

As the London office market has slowed, the major City developers are looking at alternative sectors for investment which could create some promising new construction opportunities. New housebuilding & build-to-rent, serviced work space and office refurbishment are among the sectors which property companies are pursuing.

Grosvenor Group, the privately-owned property group best-known for owning much of Mayfair and Belgravia, has recently announced plans to triple the size of its strategic land business and create a portfolio of at least 30,000 homes over the next five years. The group says it aims to be a market leader in large scale communities, which offer high quality urban designs.

Grosvenor plans to take sites of 2,000-5,000+ homes through planning and design and build them in areas with buoyant local economies where new homes are in short supply. To this end, it has expanded its homes pipeline to 9,300 from 2,100 last summer. The group is developing a scheme of 1200 homes at Trumpington Meadows in Cambs and has recently appointed Redrow Homes to deliver a development of 900 homes at Barton Park near Oxford, which will be one of 10 NHS healthy new towns.

Grosvenor is also progressing a huge £500 million investment involving the construction of some 1,500 rental homes on the site of a former biscuit factory in Bermondsey, together with a school, new offices and public places.

Meanwhile, the City’s confidence in the potential for the rented homes sector is reflected in plans unveiled last month by investment group, Harwood Capital, to raise £175 million through a stock market float to set up a fund to invest in private rented homes in UK regions.

The UK’s second largest quoted property group, British Land is also looking at the ‘build to rent’ sector, with potential developments in Ealing and Rotherhithe.

Flexible space

Having witnessed the expansion of the serviced office sector, British Land has also set up a thriving flexible office brand, Storey which it plans to extend to up 10 per cent of its own office portfolio. Rather than letting space to serviced office operators, other major quoted property groups such as Land Securities and Great Portland Estates are also looking at developing their own flexible office brands.

Great Portland Estates recently pointed to encouraging early interest in its own fitted-out flexible space, which offers simplified leases and terms starting from one month. It has recently made its first letting of flexible space at Elm Yard, WC1.

Refurbishment prospects

As well as creating tender opportunities for fit-out contractors, the growth of serviced space will reinforce construction prospects in the office refurbishment market. Here , Glenigan Construction data shows that detailed plans have recently been granted and tenders recently returned on one of the City’s largest office refurbishment projects, Stanhope’s £50 million construction project involving alternations/extensions  31 Gresham Street (Glenigan Project ID: 17239967). Work is set to start in the new year.

Glenigan Construction data shows that tenders have also recently been returned on a £4 million office refurbishment for a British Land scheme at 19 Liverpool Street in the City where work is set to start in Spring 2019 (Glenigan Project ID: 18255913).

Source: Glenigan

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Key construction sectors could gain from a hard Brexit

Concerns over the impact on the construction industry of Britain leaving the EU without a deal have inevitably been heightened as the March departure date looms. But whilst business confidence is fragile, there are signs that some key construction sectors could prove resilient or even gain from a hard Brexit.

Investment on the quayside

The prospect of congestion at the ports – particularly Dover – and an end to ‘frictionless’ trade may create tender opportunities as UK ports invest more in upgrading and enhancing their facilities. To date, Brexit has not deterred investment on the quayside.

Last month ABP, Britain’s largest port owner, unveiled proposals for Humber International Enterprise Park; one of the largest port development sites in the UK covering 453 acres and which it hopes will attract major distribution and manufacturing businesses. Meanwhile, work got underway earlier this year on a £32 million expansion at the Port of Felixstowe (Glenigan Project ID: 17104784), which will significantly increase capacity at what is the UK’s largest container port.

The weaker pound ushered in by Brexit could also provide a further lift to the numbers of tourists visiting the UK, giving a boost to hotel construction programmes. For now, the pace of expansion at budget hotel chains shows little sign of slowing. Having recently opened a 395-room hotel in the City, Travelodge is currently investing £82 million in building projects involving four hotels in London. Moreover, it is looking for a further 100 sites across London to open hotels, which will create further tender opportunities.

New hotels capacity is also being built in the regions. Glenigan Construction data shows a contract has recently been signed on the £15 million Moxy Hotel in Manchester with work set to start on the 21 month project later this year (Glenigan Project ID: 16135782).

The prospect of Britain leaving the EU customs union could also provide a spur to the domestic industrial building/logistics sector, particularly as manufacturers and retailers seek to maintain larger volumes of components and supplies closer to home.

Logistics space in demand

Although the national picture is mixed, the demand for warehousing and logistics space is continuing to expand in key manufacturing regions. The latest Glenigan Construction data shows that the value of detailed planning approvals for industrial projects in the seven months to July 2018 rose by 115% in the East of England compared to the period last year and by 147 % in the North East. On the same basis, industrial planning approvals were up by 84% in London, 77% in the North West and 30% in the West Midlands.

These figures chime with recent regional market surveys highlighting the potential in the industrial construction sector. Around Peterborough for example, where Amazon, Debenhams and Ikea all have major distribution centres, a recent Savills report showed the vacancy rate for industrial space was running at a historic low of just 2.2 per cent.

The industrial development market looks particularly healthy around the Home Counties. Glenigan Construction data shows work has recently started on a £7.6 million scheme at Symmetry Park in Bicester (Glenigan Project ID: 18035400) where Db Symmetry is building 14,200 sq m of warehouse space.

With its recent results, Kier Group noted that the industrial sector remained buoyant with strong occupier demand and robust investor sentiment. The firm’s property arm has started work on new sites in Basingstoke and Reading and secured further sites in Chelmsford, Gravesend, Solent and Maidenhead with construction due to start over the coming year.

Source: Glenigan