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No crystal ball required

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The start of the year is a traditional time for journalists to get their crystal balls out and write about future prospects. Events this year have thrown all sectors of the economy into even more uncertainty than usual, so no predictions, but a few trends are worth highlighting.

The landslide Conservative general election victory might have removed some uncertainties and it was well received on the financial markets, but analysts seem agreed that the UK economy could be in for a potentially weaker couple of years than otherwise might have been the case thanks to Brexit. The world economy is also showing signs of weakening, and growing protectionism worries potential investors. So, there is still no shortage of reasons for putting investment plans on the back burner.

There is still strength in the market for construction services though. The latest construction market statistics, released by Barbour ABI on the same day that we heard the election result, showed the market making some recovery from recent falls in the total value of contracts awarded in November. It is encouraging that demand is moving in the right direction, but what might be more interesting is the changing nature of demand for developments.

The commercial market has been strengthened in recent years by the ultra-low interest rate environment and commercial property is widely recognised as an asset class that can deliver strong and sustainable income for investors along with long-term capital appreciation. But there are deep structural changes underway affecting the commercial market, deriving from profound changes in the way people are choosing to live, shop and work. The most publicised change concerns retail, with more and more shopping going online without visits to physical stores.

The shift from High Street shopping to the internet has been a major force shaping the commercial property market in recent years, and it is one that steel has been able to support with its ability to quickly fabricate and erect the new logistics buildings needed. Demand has been high for large regional logistics centres to warehouse the products ordered online, and there has been a healthy demand, in the south east especially, for ‘last mile’ logistics space. It is a fast-moving and agile market, which steel is well suited to serve.

This demand remains strong. A prime distribution warehouse in Wembley has recently been pre-let on a ten-year index linked rent with no breaks; a mouth-watering deal for the property sector. Demand has also been strong outside the south east, for example within the logistics ‘Golden Triangle’ in the Midlands.

Other types of property are also providing growing demand. The drivers have been technological, demographic and societal as well as economic, and investors have cottoned on to the opportunities. So, private healthcare, student accommodation, hotels and leisure facilities, data centres and private rented housing have all become important sectors in recent years.

NSC has regularly contained reports of these new markets being successfully served by steel. All of these markets demand construction services that are admirably provided by steel construction, including cost-effectiveness, speed, high sustainability credentials, flexibility, and offsite production. No crystal ball is needed to predict that this will continue.

Nick Barrett

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