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Falling demand for commercial property to see tender prices drop

In a volatile, uncertain and complex environment, success will rely on the willingness and ability to take greater risks. Clients will need to take risks on project decisions, whilst suppliers will need to do the same when it comes to pricing. A key question is whether the adversarial tactics of previous downturns will make a comeback. With this in mind, the winners will be those who manage to create the greatest certainty.

Simon Rawlinson

Head Of Strategic Research and Insight +44 (0)20 7812 2319 Ask me a question

"With volatility all around, the winners will be those who manage to create the greatest certainty"

In a volatile, uncertain and complex environment, success will rely on the willingness and ability to take greater risks. Clients will need to take risks on project decisions, whilst suppliers will need to do the same when it comes to pricing. A key question is whether the adversarial tactics of previous downturns will make a comeback. With this in mind, the winners will be those who manage to create the greatest certainty.

Housing

Registrations for private new homes are reported to have dipped 5 percent towards this end of 2016 with transactions in the UK also decreasing by over 4 percent between August and September. On top of this, residential development land prices have fallen with prime central London land prices down by almost 10 percent. In recent times, residential construction has been one of the growth engines in construction demand so any potential fall in activity could have a knock-on effect in wider markets. 


The government’s long-awaited Housing White Paper, expected later this year, should set out a comprehensive package of reform to increase supply and halt the decline in affordability. To help deliver this, the Autumn Statement announced the Housing Infrastructure Fund of £2.3 billion allocated to local government to provide infrastructure targeted at unlocking new private house building.  This aims to create up to 100,000 new homes. 
 
Commercial

Investor demand for UK commercial property has continued to recover, although sentiment remains fragile and transactions remain low. Notably, UK-focused REIT share prices remain well below pre-referendum levels. With falling asset values but still relatively high construction price levels, viability challenges still exist and may continue throughout the year. 

The Bank of England indicates that occupier demand, particularly in London, is dropping and its recent financial stability report said that risks from an adjustment in the UK commercial market have in part begun to crystallise. That said, the go-ahead for Google and Apple’s London schemes is positive news and reflects, in part, confidence in London’s status as a global city.


Infrastructure

The past quarter has seen infrastructure come under the spotlight with a number of high profile and key project decisions being made by government. With this in mind, we expect infrastructure tender prices to hold up well throughout the year. 

Though the National Infrastructure Commission will not be enshrined under legislation as an independent body, its existence and purpose has been validated by the new government. Furthermore, the Autumn Statement reinforced the very positive outlook for infrastructure, committing almost £20bn of additional funding. 

Questions about this article

Simon Rawlinson

Head Of Strategic Research and Insight +44 (0)20 7812 2319 Ask me a question

Arcadis White paper

Market View 2017

Falling demand for commercial property to see buildings’ tender prices drop

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