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Gemma Harle

June 27, 2014

Brian Kilroy is business development manager at BLP Insurance

 

It has been a bumpy ride over the last few years but positive sentiment about the construction industry is returning and we are seeing an increasing number of commercial, office and residential developments coming to fruition. 

However, without wanting to paint a gloomy picture, while we enjoy this recovery, this could all be down to smoke and mirrors right now and it could be a very different picture this time next year. 

The commercial property sector in particular tends to go through six to seven year cycles. 

Demand increases so office rents go up: developers cease the opportunity to build more and then we witness a dip again as supply outweighs demand and rents subsequently go down. 

This is very obvious in London as you see finished office developments standing empty for some time while they wait to secure a tenant.

This causes prolonged problems. 

We recently carried out a survey among commercial brokers in the UK and 26% of respondents cited overheating in the market as the key issue facing the commercial construction industry in 2014.

In addition, a third of those surveyed are concerned about income stream protection for tenants in a development in the event of a building defect arising. 

Over a quarter consider the ability to offset potential losses which could arise as a result of having to put right any failings as the most important consideration when looking at insurance protection options.

Residential development is a different story. 

When office rents fall and construction activity goes down, developers change their priorities accordingly. 

Again, a walk around London will show you schemes that were initially earmarked as office developments, have now been adapted to accommodate more residential accommodation. 

It’s the natural swing of the industry and development uses have to adapt to keep up with demand.

Our survey confirmed that market sentiment has clearly increased significantly over the last 12 months, but there are now new emerging concerns that the cycle is beginning to enter its next phase.


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