Office and fit-out markets drive industry boom in 2006

The industry has continued to boom in the last month, which has resulted in lead times for material being at their longest for two years.

Three reports issued in the last week have confirmed activity was very strong in November. The CIPS Construction Purchasing Manager’s index recorded high levels of activity across the sector over the course of the month. Its report said that the strength of the market throughout 2006 had led to a high demand for raw materials. This has placed pressure on suppliers, resulting in average lead-times lengthening to “the highest market rate for two years”.

An economic brief issued this week by the RICS backed this finding, commenting that the market was currently in a state of “robust expansion”. The brief said construction activity would expand in the fourth quarter of 2006 to close at its fastest rate in two years.

The third report, issued on Tuesday (12 December) by the research arm of Savills, said the commercial property sector continued to strengthen in November with growth in total activity accelerating to its sharpest level for eight months.

We remain concerned about too much office development taking place

Mat Oakley, Savills

The Savills index reported an overall figure of 62.8 in November, which was up from 61 in October. The growth in private-sector office activity and office fit-out in particular was acute, according to Savills (see across). The former grew at its sharpest rate for 32 months while the latter expanded at the fastest rate since Savills had first collected data in March 2003.

Mat Oakley, head of Savills’ Commercial Research department said private office development was strong, but did raise some concern regarding over-supply of new stock.

He said: “Office fit-out activity was at a record level last month, which indicates that tenant demand is probably keeping pace with development activity. Looking ahead, we remain concerned about the possibility of too much office development taking place in some locations. However, at present it appears that demand is keeping pace with supply.”

There were also green shoots of recovery indicated by the survey for the industrial/ warehouse sector, with 31% of respondents to the survey anticipating a rise in activity over the next three months. Commercial developers were also confident that levels of office construction and retail, and leisure activity would continue to increase in the three months ahead.