Source: Markit, Savills Research
Renewed growth of commercial activity
Key Findings
■ Rising from April’s -1.0% (44-month low) to +1.0% in May, the headline Total Commercial Development Activity Index – a net balance monitoring the overall performance of the UK commercial property sector – pointed to a marginal increase in activity that reversed the downturn seen in the prior month.
■ The rebound reflected a further expansion in private projects, while public work contracted at a considerably slower rate.
■ Industrial/warehouse recorded the strongest upturn, while growth was also seen for private retail & leisure, private new build, and refurbishment. Declines were seen in the remaining five categories.
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Future Expectations
■ Confidence among UK commercial developers dipped further during April.
■ Down from +2.3% to +1.6%, the net balance highlighted the weakest degree of optimism since November 2012.
■ Subdued confidence was linked by survey respondents to uncertainty regarding the EU referendum.
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Source: Markit, Savills Research
Commercial Activity and UK Economy
■ The chart to the right shows the Savills Total Activity Index against the UK Construction PMI®.
■ The seasonally adjusted Markit/CIPS UK Construction PMI® fell from 52.0 in April to 51.2 in May, signalling the weakest overall rise in business activity for almost three years.
■ All three broad areas of construction activity as measured by the PMI® – residential, commercial and civil engineering – were stuck in a low gear during May.
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Source: Markit, Savills Research
Total level of commercial activity compared with one month ago
■ UK commercial activity increased in May, following a contraction in the prior month. At +1.0%, the net balance pointed to only a fractional pace of expansion however.
■ The downturn in public work softened, with the net balance up from -20.9% to -2.9%. Growth of private projects eased, as indicated by the net balance falling from +9.4% to +3.2%.
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Office activity compared with one month ago
■ Public office activity decreased for the sixth straight month in May. The rate of reduction slowed from April’s 44-month record, but was nonetheless solid.
■ May saw private office work decline for the second successive month. The net balance was at -6.8%, pointing to a moderate rate of contraction.
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Retail & leisure activity compared with one month ago
■ Although private retail & leisure projects continued to increase, the pace of expansion eased to the weakest in the current 40-month period of growth.
■ Public retail & leisure work fell again in May, but at a slower rate than in April. The net balance was up from -16.9% to -5.5%.
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New build activity compared with one month ago
■ UK commercial developers recorded a forty-fifth consecutive monthly rise in private new build activity in May. The rate of expansion was, however, the third-weakest in this sequence.
■ As has been the case for one year, public new build work decreased. That said, the net balance posted its highest reading since last July.
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Industrial/warehouse activity compared with one month ago
■ Industrial/warehouse projects rose again in May, thereby stretching the current sequence of expansion to 45 months.
■ A net balance of +11.8% of commercial developers saw growth, compared with +11.3% in April.
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Refurbishment activity compared with one month ago
■ Refurbishment activity rose for the forty-fifth month running in May, although at the slowest pace in this sequence.
■ The net balance fell from +4.5% in April to +1.0%, pointing to a marginal rate of expansion overall.
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Office fit-out activity compared with one month ago
■ Office fit-out projects decreased in May, thereby ending a three-month sequence of expansion.
■ Down from +1.2% in April to -4.5%, the net balance was at its lowest level in over three-and-a-half years.
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Summary of activity in May
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■ UK commercial activity returned to growth territory in May, supported by a further expansion in private work. Public projects declined again, although at the slowest rate in six months.
■ Four of the nine monitored categories registered growth, the exceptions being public office, private office, public retail & leisure, public new build and office fit-out.
■ Industrial/warehouse was the best performing category, as has been the case since February.
■ Concurrently, the sharpest drop was noted for public office work.
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Regional commercial activity compared with one month ago
■ May data indicated that commercial activity fell in London and the South East, while growth was recorded in the ‘Rest of UK’.
■ The contraction in London ended a 44-month sequence of expansion, with the net balance dipping from +4.2% to -10.2%.
■ Commercial work in the South East declined for the first time since August 2012, and at the quickest pace in over seven years.
■ The ‘Rest of UK’ bucked the regional trend and saw activity increase again in May. Moreover, the growth rate was marked and accelerated since April.
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