Bloomberg News

U.K. Property-Development Index at the Highest in Two Years

April 13, 2012

A U.K. commercial property- development index rose to the highest in more than two years in March as construction companies bet that Britain will avoid its second recession in four years, Savills Plc (SVS) said.

The Total Commercial Development Activity Index, a measure of the country’s commercial-property industry, rose to 13.1 percent from a negative 3.6 percent in February, according to a report published today by the London-based broker. The gain was the first in nine months and lifted the index to its highest since February 2010, Savills said.

“Developers are becoming slightly more optimistic about the prospects for economic growth,” Matt Oakley, head of commercial research, said by phone. “People are beginning to embrace the idea that a double-dip recession isn’t inevitable.”

The U.K. probably avoided a technical recession of two consecutive quarters of falling economic output by growing 0.1 percent in the first three months of 2012, the National Institute of Economic and Social Research said last week. Developers stepped up office construction in 2010 amid expectations that tenants would choose new buildings when their leases ended.

About a quarter of developers said their work increased in March. A decline in output was reported by 12 percent of respondents. Companies in southeast England, excluding London, were more than twice as confident than a month earlier, according to the survey of more than 200 real-estate developers. The report was compiled by Markit Economics Ltd. for the broker.

Industrial Projects

Six of the nine industries involved in the survey had gains in development, led by industrial and warehouse-related real estate projects. Developers of public retail and leisure property had the greatest drop in confidence.

Around 18 percent of respondents said they expect development to increase in the next three months as Britain’s economy expands, compared with one in 10 who expected a decline.

“Encouragingly, this recovery appears to be broad-based and not just London-focused,” Michael Pillow, head of building consulting at Savills, said in the report. “With development activity rising at its strongest rate for two years, it is clear that developers are anticipating a demand-side improvement.”

A positive number signals improvement in the index and a negative number a deterioration, according to Savills. The higher or lower the number, the greater the rate of change indicated.

U.K. commercial-property values fell 0.3 percent in February from the previous month, the fourth straight decline, Investment Property Databank Ltd. said March 14. Retail buildings led the drop.

To contact the reporter on this story: Chris Spillane in London at cspillane3@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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