Forecaster CFR says office/retail will slip 4% and 2% in 2001 and 2002, with overall output slowing, too.

The buoyant commercial market is set for a downturn over the next two years, says Construction Forecasting and Research.

In CFR’s summer survey, published this week, output in the commercial sector, which comprises retail and office space, is forecast to fall 4% next year and 2% in 2002. This follows four years in which the sector grew by an average of 13% a year.

CFR researcher James Hastings said the downturn was expected because the market had reached the peak of its current cycle. “The area dragging the sector down is retail, which is very dull. This is mainly because of planning restrictions, like no more out-of-town schemes.

“The level of competition between high-street retailers means their profit margins are squeezed and the last thing a company wants is a large capital expenditure programme,” he said.

CFR’s forecast for overall construction is also gloomy, with output predicted to grow only 1.4% this year and next. This compares poorly with CFR’s winter 1999 forecast, which predicted average growth of 2.1% over the same period. However, figures for 2002 are more promising, with output expected to rise 1.9%.

CFR has also predicted that the long-awaited spending spree on local authority repair and maintenance work following the sell-off of council houses will happen over the next three years. This will lead to an average annual increase of 7% in R&M on public housing between 2000 and 2002.

Hastings said the delay in capital receipts funding was because councils were going through the process of transferring property to social landlords before any repair work was carried out. “The actual process of getting the funds to the front edge is taking longer than expected,” he said.

The area dragging the sector down is retail, which is very dull

James Hastings,CFR

The overall picture for repair and maintenance shows an increase of 2.5% this year, rising to 4% next year before dropping back slightly to 3.7% in 2002.

R&M on private housing is forecast to edge up, as it is on public and private non-residential work.

In contrast, infrastructure is set to boom over the next three years, with increasing investment in transport schemes balancing out the decline in water and sewerage projects.

Spending on infrastructure is predicted to grow 6% in 2002, boosted by work on the Channel Tunnel Rail Link and the upgrade of London Underground.

For housebuilders, the outlook is less promising. Both the public and private markets are expected to level out over the next two years. According to CFR, output will fall by 0.7% between 2000 and 2002.

Public non-residential work is heading for a steady decline in 2002, after strong growth in 1999. And a modest increase in private industrial projects is expected in 2002.