CBRE Ltd.



CBRE Ltd.

December 05, 2012 08:59 ET

Decline in UK Property Construction Accounts for Half of Total Economic Contraction Since 2008

Central Support For Commercial Real Estate Development Could Provide Sustainable Solution to Economic Performance

LONDON, UNITED KINGDOM--(Marketwire - Dec. 5, 2012) - The decline in private sector property construction since Q1 2008 is responsible for 48% of the contraction of the UK economy, according to new research from global real estate advisor CBRE. This is even bigger than the contribution from financial services (40%), while many other business sectors are almost back to pre-recession levels of economic activity.

Commercial property development activity has played a disproportionally large role in the performance of the UK economy despite contributing only 7.5% of the economy in early 2008. On reviewing this data, CBRE believes that, without noticeable increases in private sector development, the wider economic outlook for the UK is likely to be inhibited.

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Overall, public sector development is up to at least pre-recession levels including public housing and infrastructure activity. The counterpoint to this is that there have been severe falls in new private sector work; housing construction is down by 35% from 2008 and new industrial and commercial construction activity has fallen by 40%. This means that the fall in private sector work accounts for practically the entire decline in UK construction. The impact of the fall in private sector house building is serious, but the drag on the economy from the decline in commercial and industrial development is actually twice as large.

The main cause for the decline in private sector construction activity has been a lack of bank lending and development finance. CBRE warns that the Basel II and III agreements will place further pressures on lending in this sphere and policy makers need to be mindful in the overall role commercial property plays in economic recovery.

Dr Neil Blake, Head of UK and EMEA Research, CBRE said:

"Quite how much of the fall in UK economic output is directly related to the problems of the construction industry in general, and commercial property development in particular, needs to be better understood. Almost 50% of the loss in UK economic output since the beginning of 2008 can be attributed to private construction activity.

"Monetary policy and financial regulation is clearly beyond the scope of next week's Autumn Statement, but there might still be other policies that can be introduced to kickstart construction to assist recovery. Clearly, anything that simplifies and speeds up the planning process helps and policies that assist the financing of the sector, would be a positive move.

"This is a not a plea for special measures or treatment but a reminder that the hit to commercial property development has had a disproportionate impact on the UK economy. Without a sustainable turnaround in commercial property development levels, overall economic recovery will be hard to support."

The knock on impact of a lack of private sector commercial developments will continue to be felt across all other business sectors if not addressed. A shortage of high quality commercial office space could act as an impediment to future inward investment into business hubs across the UK. Moreover, this lack could deprive companies of the space needed to support their business plans - such as expansion. Office vacancy rates in major UK cities are currently similar to the 10 year average, not the high levels frequently reported, and much of this vacant stock is predominantly secondary space.

Neil Blake added,

"What is bad for private sector construction is clearly bad for the UK economy as a whole. We cannot say that a full and sustained recovery of the UK economy is impossible without a recovery in this sector but its continuing malaise remains a major factor inhibiting recovery."

Read the full report at www.cbreresearch.com.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services firm (in terms of 2011 revenue). The Company has approximately 34,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.co.uk.

Follow CBRE on LinkedIn: http://www.linkedin.com/company/cbre-uk.

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