Commercial construction sector set to weather uncertainty

Having bounced back from pandemic decline, the size of the commercial building construction sector is forecast to grow further this year.

Sirius Property Finance analysed the market size of the commercial building construction sector based on revenue, how it has changed in recent years, as well as how it is expected to perform in the years ahead. 

The research shows that the sector declined sharply as a result of the pandemic, reducing in size by 20.2 per cent in 2021 to £16.17 billion. 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. 

In 2022 the estimated market size of the commercial building construction sector bounced back sharply, increasing by 15.6 per cent to £18.69 billion.

This year it’s expected that the market will recover further, rising by 2.8 per cent to reach an estimated market size of £19.21 billion.

However, 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. 

Like much of the property sector, commercial building construction is being affected by rising interest rates, which currently sit at 4.50 per cent after repeated increases by the Bank of England.

Meanwhile there’s a growing work from home culture which has impacted some commercial property demand, particularly office spaces. Some construction firms have also been spooked by the prospect of a recession, though those fears appear to have receded in recent months.

Despite these strong headwinds, it’s forecast that the size of the commercial building construction sector will cool by just 0.9 per cent in 2024, and 0.5 per cent in 2025. 

Head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, comments: “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.”