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Property agent Savills found that over a third of developers and contractors expected healthy growth of activity during the first quarter of 2006, with overall optimism at its highest since last February.

The high hopes came despite a seasonal slowdown in activity last month, with Savills' index showing overall activity in both the public and private sector as unchanged between November and December 2005. While the headline figure showed no change, growth was reported for all nine areas of activity (see graph), with expansion strongest in industrial/warehouse activity.

Mat Oakley, head of Savills' commercial research department, said the recovery in the leasing market was driving a "new sense of optimism amongst developers". "We expect office development activity to accelerate gently throughout 2006, leading to a rush of completions in two to three years time."

The study came as latest figures from research firm Experian showed that construction output is set to rise by nearly 2% this year, with the rate almost doubling by 2008.

Its National Construction Forecast said although construction output fell slightly in 2005, the dip would be temporary. The forecast said the industry would bounce back, increasing output by almost 4% by 2008.

We expect office development activity to accelerate gently throughout 2006, leading to a rush of completions in two to three years time

Mat Oakley, Savills’ commercial research

Experian added the decline in 2005 of half a percent was the first fall in the industry since 1994. It was put down to weakness in the public sector, including non-residential and housing construction, repair and improvement.

The balance between growing and declining sectors continues to be unpredictable, Experian said. As public housing orders have declined, private house building has risen and similarly industrial construction has overtaken commercial orders.

James Hastings, head of construction futures research at Experian, said the slight downturn in industry was likely to be short-lived. He added that in 2004 construction orders rose by 7.6% and in the first three quarters of 2005 were almost 5% higher than in the same period of 2004.

He said: "The main drivers of growth are expected to be the general economic upturn that is forecast, with a return to trend GDP growth from this year, a strengthening housing market, work on directly and indirectly related Olympics projects and government spending."