Still lots of opportunity in commercial construction

Demand for commercial real estate in the UK is fluctuating. Think retail, industrial, office space.

According to a report by RICS, 43% of respondents to its quarterly commercial property survey think the sector is entering a downturn, and a further 10% think it was in the middle of one.

Why this is important: Economic activity associated with commercial real estate directly generates around 1.7% of the total gross value added (GVA) of the UK. And it makes up 1.8% of the total UK workforce.

Further increases in interest rates are dampening part of the sector’s macroeconomic outlook. But not the entire sector. Demand for industrial will continue rising, and after taking a dip in 2020, office space is beginning to level off.

Lookout for: Retail and hospitality. There isn’t the same demand for physical stores as before. On top of this, restaurant chains cut underperforming outlets in a difficult economy. Côte Brasserie has already shut down 18% of its restaurants.

However, hotel development (particularly in London) seems to be performing well. The pipeline of hotel projects in the capital approved since 2020 is worth £740m.

Projects to watch: Lendlease have just begun their £944bn 47-story mixed-use tower on the edge of San Francisco. The project will be 290,000sq.ft of office and retail space along with 333 apartments.

I know this is not in the UK but..

San Francisco has taken a hit in the last few years, both economically and societally. With Lendlease investing in this long-term “global best-in-class asset of the future”, it should give investors confidence that the commercial real estate market still has a lot to offer, especially in major cities.

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