Where demand leads

There is plenty of development activity in the market, but there is clear clustering around places and uses where there is a clear reason to build. The distinction matters because recovering property market does not necessarily mean every sector moves forward together.

This week's stories instead suggest developers, investors and contractors are following identifiable sources of demand, whether that comes from changing lifestyles, digital infrastructure, scientific research, logistics requirements or the need to find a better use for an existing building.

SEGRO's decision to start a 722,000 sq ft logistics warehouse in Northampton is perhaps the clearest example. This is a substantial development commitment, but it is being made at an established logistics location next to the M1, with rail freight infrastructure already operating and other major occupiers on the park. SEGRO also points to strengthening big-box take-up as it brings the building forward.

Something similar can be seen in very different property and construction sectors. McLaren Living's approval for 280 co-living studios at Fish Island reflects the continued expansion of operational living into locations where developers believe demographics, transport connections and employment can support rental demand. The scheme also includes 44 affordable homes and completes the final plot of the wider Neptune Wharf masterplan.

In Oxford, meanwhile, the Ellison Institute of Technology is creating highly specialised facilities for plant and generative biology. Foster + Partners' designs show how far buildings can now be shaped around the requirements of particular research activities, with laboratories, collaboration spaces and even a rooftop greenhouse forming part of the development.

But perhaps the most revealing story this week is the one where the original demand has disappeared and been replaced with a new one. Phoenix House in Vauxhall has been largely vacant since Lambeth Council stopped using it as offices in 2019. Whitbread is now converting the building into a 180-bedroom Premier Inn, retaining much of the existing structure rather than attempting to revive its former use.

It’s an example of one construction client keeping an eye on changing demand and responding by taking a stranded asset and turning it one where demand is growing. This ability to identify a new purpose for an existing building is now a valuable element in successful development.

This same kind of shift can be seen within construction itself as one part of the supply chain  finds growth by leaning in on its specialist knowledge.  BESA's latest figures show turnover among the largest M&E contractors climbing from £4.7bn after the pandemic to more than £6bn, with mission-critical sectors such as data centres helping to drive that recovery.

A lot of the growth is driven by technically-demanding buildings that require complex building services solutions. Regulation is reinforcing that change, with the Building Safety Act putting greater emphasis on competence, compliance and accountability across sectors.  The result is a market in which specialist knowledge has gained in value.

 One to Watch:  Adaptive reuse

Phoenix House is one example, but the principle extends further. Even the Ellison Institute's new research facilities will retain substantial parts of three structures already under construction.

With embodied carbon, construction costs and the amount of underused property all influencing development decisions, retaining a structure and changing what happens inside it could become an increasingly mainstream development strategy.

The interesting question is how far that approach can go. Office-to-hotel is already established, but buildings designed for one market may increasingly become the raw material for another.

Risk Radar: Demand becoming too narrow

A market built around strong pockets of demand can still produce plenty of construction, but it also creates concentration risk.

Data centres, logistics, operational living and specialist research buildings all have compelling growth stories, yet developers pursuing the same sectors can eventually create competition for sites, power, occupiers and investment.

Meanwhile, BESA's warning that contractors continue to face pressure from inflation, fixed-price contracts and project delays is a reminder that a strong pipeline does not automatically translate into healthy margins.  Finding demand is one challenge, delivering into it profitably remains another.