Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

October 25, 2023

IBST and demand for Central London office space picks up, tentatively

Company news

Ibstock (IBST, 123p, £483m mkt cap)

UK’s largest brickmaker. Trading update.

Guidance: “Market demand in the period was more subdued than expected. As a result, and in line with the wider UK brick industry, sales volumes in the third quarter were below those achieved during the second quarter of the year. Despite these weaker volumes, effective cost reduction action combined with stable pricing resulted in margins for the quarter remaining robust. The Board anticipates that the benefits of its actions will continue to mitigate demand weakness in the final quarter and, consequently, its underlying profit expectations for the 2023 financial year [to Dec] are unchanged”.

Outlook: “Given the ongoing challenging market conditions, we will continue to actively manage capacity and costs. In doing so, we will ensure that our capacity is aligned to market demand, whilst ensuring we are well positioned to respond when activity levels recover. The strength of our balance sheet continues to provide both resilience in more subdued conditions and strategic optionality for the future. This is reflected in our ongoing commitment to capability and growth investment, with key projects progressing well. We continue to expect our new Atlas factory to commission from the end of 2023, and to bring to market the UK’s first certified carbon-neutral brick in 2024. Residential construction markets are expected to remain subdued in the near term. As macroeconomic conditions stabilise, we expect a recovery in market activity, reflecting the significant underlying demand for new build housing in the UK. Whilst we are taking a cautious view around the pace and timing of this recovery, we remain confident in our ability to continue to respond to market conditions, taking the action necessary to protect performance, while ensuring the business remains well-positioned for an increase in activity”.

Economic data

Offices. Demand for central London office space stands at 12.6m sq ft at the end of Q3, up 41% on the long-term average, and space under offer at the end of Q3 stood at 3.9m sq ft, up 35% on the five-year average, according to a research update from Savills, which concludes there are signs of an improving outlook despite the still challenging backdrop. The agent’s research shows central London take-up at the end of Q3 reached 2.2m sq ft, across 179 transactions, down on the long-term average for Q3 by 25%. However, leasing activity was up 10% on the previous quarter, and has seen the highest quarterly take-up so far this year. Take up for the year to date stands at 6.1m sq ft, down 21% on the long term average. At the end of Q3 Central London supply stood at 22.8m sq ft, which equates to a vacancy rate of 8.7%, up 10 bps on the previous quarter, and in terms of the development pipeline, YTD development completions reached 4.57m sq ft. Overall development completions from now until the end of 2027 are expected to reach 29m sq ft. However, 51% of the space scheduled for delivery over this timescale is yet to start, and with construction and financing costs showing little signs of abating Savills anticipates this will result in further delays and delivery challenges for schemes that are not yet underway. Its survey shows more occupiers are seeking to increase their space needs (44%) than reduce (18%). Preference to better quality office space remains, according to Savills, with Grade A take-up accounting for 90% of activity. The Insurance & Financial sector has continued to be the main driver of leasing activity so far this year, accounting for 26% of space acquired (by sq ft). The next largest sector was the Professional Services sector with a 12% share of take-up, followed by the Tech & Media sector with 11%.

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