Commercial building work is expected to lift 2.8% to £19.2bn this year, building on its pandemic recovery, according to data from Sirius Property Finance.
The sector declined sharply during the health crisis, falling by 20.2% in 2021 to £16.2bn, says the debt advisory specialist.
It adds: “This was not only the largest year-on-year decline seen in the last decade, but also saw the sector shrink to its smallest in the last 10 years.”
The following year in 2022, the estimated market size of the commercial building construction sector bounced back, jumping 15.6% to £18.7bn.
However, although the firm’s analysis forecasts smoother growth this year, it points out that “conditions for the UK construction sector remain challenging and this is forecast to have a negative impact on sector size in the mid-term, albeit far more marginal than many may have expected”.
The company says commercial construction, like much of the property sector, is being hit by rising interest rates, which currently sit at 4.5% after 12 rises in a row by the Bank of England.
Commercial building has also been affected by the post-pandemic easing of demand for new office space, due to a strong work-from-home culture, for at least part of the week.
The business says: “Some construction firms have also been spooked by the prospect of a recession, though those fears appear to have receded in recent months.”
It adds that “despite these strong headwinds” it forecasts the size of the commercial building construction sector “will cool by just” 0.9% in 2024 and 0.5% in 2025.
Sirius Property Finance head of corporate partnerships Kimberley Gates says: “The pandemic hit the construction sector hard, so it’s heartening we’re due to see a further uptick in activity in 2023, following a very strong recovery in 2022.
“Of course, the commercial sector, like the rest of the property market, is currently facing a challenging landscape.
“Rising interest rates have made financing new projects more difficult than years gone by and the pandemic has also left its mark by affecting commercial property demand for office space, in particular.
“When combined with a backdrop of material and labour shortages we do expect a slight retraction within the sector in the coming years.
“However, the positive to take is that it will be far more marginal than previous years and, as the wider landscape does stabilise, there will remain a strong foundation for future growth.”
