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2024 forecast - work space.

We are continuing to analyse the output from the recent Glenigan report, and today, we discuss the impact that changes in the retail and commercial sectors are having on hiring for construction roles within these areas. 

Alex Poulter, our Work Space senior consultant, reflects on the fact that his team has really rallied together to weather the challenges of 2023, not only overcoming budgetary and planning constraint difficulties but also successfully expanding its client base and supporting some high profile fit out and refurbishment projects in Central London.

Alex's team has also supplied high quality professional talent into contractor partner roles based in Birmingham, Manchester, Leeds and Bristol, increasing Build Space's UK footprint and supporting a wider range of projects than has historically been the case.

Glenigan's retail forecast for 2024

The success of online retailers sees a continued demand for light industrial and warehouse space, so although project starts in 2023 saw a 28% decrease, recovery is expected in 2024, buoyed by increased confidence from discount supermarkets Aldi and Lidl, both of which have published their long-term plans and pledged to increase the size of their estates.

The development pipeline for retail projects remains strong, although it is likely that in the short term, activity will be focused upon modernising and refitting currently vacant retail premises before new build projects of any significance commence. Estimates by Savills suggest that 14.5% of the UK's retail space is currently vacant as many retailers, faced with fierce competition from online retailers with lower operating costs, remodelled or closed unprofitable stores.

The cost of living crisis continues to affect the retail sector as discretionary spending is particularly hard hit, and household budgets continue to be squeezed. The recent announcement of a further increase to the energy price cap in January will do little to persuade consumers to part with their hard earned cash, so until inflation drops to more manageable levels, it is likely that investors in this sector will continue to exercise caution.

Rising prices on non-discretionary expenditure, including groceries, have prompted many consumers to reassess their shopping habits, and increased visitor footfall has been noted at all major supermarkets this year. This increase is believed to be prompted by consumers attempting to better manage their budgets with more regular, smaller shops, rather than opting for the online grocery delivery services which became popular in the wake of the COVID-19 pandemic.

This is the predominant reason why Lidl and Aldi are prioritising their estate expansion plans, placing supermarket development projects at the head of the retail construction project leaderboard for the coming years.

Commercial forecast

Office capital values were impacted by the sudden increase in interest rates, causing investors to retreat from this area, creating a 26% decline in office project starts this year. Vacancy rates continue to climb, and occupants' changing needs mean that structural changes are often required to existing infrastructure to satisfy the needs of hybrid workers.

It is speculated that almost half of London's workers are on a hybrid working arrangement, and with the cost of office rentals in the capital representing a significant financial investment, many building owners are being driven to rationalise or repurpose their space to maximise the value of their investment.

At the same time as London's office market is being hit by reduced footfall, positive news abounds from other cities such as Manchester and Leeds, whose development pipeline continues to grow as businesses look to increase their long-term resilience through remodelling and creating collaborative workspaces. Activity of this type is expected to drive much of the sector's growth next year.

Tenants and occupiers are increasingly conscious of their environmental footprint, so refit projects which incorporate energy efficiency technologies and renewable energy solutions will continue to be in high demand over the coming year, requiring talented professionals with experience in this domain to support future projects and plans.

Also driving the need for increased energy efficiency is the recent change to legislation, which mandates that let office accommodation must achieve a minimum Band E EPC rating. It is likely that further updates will require that this be updated to a minimum of Band B by the end of the decade so refurbishment and retrofit projects will be required to modernise existing infrastructure or convert it to alternative uses. 

In conclusion, our Work Space team is navigating a challenging operating environment, but prospects exist for the construction sector to flourish, should construction companies and contractors consider the long-term viability of their plans and implement appropriate risk mitigation activities early.

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