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Wet weather adds to construction’s woes

New construction activity contracted by 14% during the final quarter of 2015 on a year earlier, according to figures released today (14th January) by industry analysts Glenigan.

The value of new work starting on site fell across the residential, non-residential and civil engineering sectors of the industry. Over 2015 as a whole, starts were down 4%, with both non-residential and civil engineering sectors having declined. This is the first annual decline recorded by Glenigan since 2009, and follows growth of 10% in 2014.

In fact only a handful of sectors saw rises in project starts during 2015. These were the private housing, industrial, education and utilities sectors.

Glenigan’s monthly index of project starts had already fallen into negative territory during the three months to November, but the extreme weather conditions in December have brought a starker pace of decline.

Commenting on this month’s figures, Allan Wilén, Glenigan’s Economics Director, said: “The wettest December on record has added to the industry’s woes. Moreover sites will stay waterlogged for some time, hindering starts in the new year.”

“We expect the upcoming output figures to reveal another quarterly decline in construction activity. The lack of new projects starting in 2015 will cause a New Year hangover for growth in early 2016.”

Glenigan’s data suggests a lack of confidence among the construction industry’s clients. The value of work receiving detailed planning approval* increased by 15% in 2015, but this has failed to translate into workers on site.

Mr. Wilén concluded: “There is a significant pipeline in place to fuel construction growth in 2016. However clients are currently not pressing ahead with planned schemes at the same rate we witnessed during 2014.”

The Midlands and Northern regions of England fared best during 2015. The East Midlands, East of England and North East of England were the only three parts of the UK to record growth over the year, though declines across the other Northern and Midlands regions were modest. In London, Southern England and Scotland the decline in new work has been more stark. The value of starts fell by 11% in the Capital in 2015.

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The North West led all regions for new-build activity

The North West residential sector saw a significant boost in the number of new build properties commissioned in Q3 this year, leading all regions with 5,275 units.

According to the latest Market Insight report from construction data experts Barbour ABI, £621 million pounds worth of property development was commissioned in Q3, with £608 million from the private sector. This is a significant figure that will likely provide a boost in confidence across the industry and region, as investors are giving the go-ahead to a significant amount of residential projects.

Greater Manchester had the leading amount of residential investment in Q3 within the North West, with major projects commissioned including two city centre £40 million projects, the New Union Street and Axis Tower developments, constructing 302 & 172 apartments respectively.

Six of the top ten largest residential projects commissioned in the region in Q3 were private developments for flats, which has been a major area of residential growth within the region.

Commenting on the figures, Michael Dall, Lead Economist at Barbour ABI, said “With a lack of housing across the North West heavily publicised, it’s welcoming news that the region leads the UK for new build units in Q3.”

“With the mismatch between housing supply and demand, property prices have continued to rise at a significant pace in the region. Home movers, investors and housebuilders will welcome the news, as major residential investment has been poured into the North West in the last quarter, which will hopefully help to alleviate the housing shortage.”

“If there’s one concern coming from these latest figures it is from a social housing perspective. Only ten of the 87 projects came from the public sector in Q3, however it’s likely that affordable housing will be provided within many of the up-coming private residential developments.”

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Construction activity declines in Q3

The latest ONS figures, released this week, highlighted a decline in construction activity during Q3. Output in the construction industry was 2.2% lower than in Q2 and 0.1% lower than a year ago, and was 4.3% lower than the pre-recession peak.

Dr Noble Francis, Economics Director at the Construction Products Association, put the data into context: “The fall in construction output in Q3, compared to a year ago, was the first annual fall since 2013 Q1. Skills shortages have been a key issue recently in the industry and are hindering growth, especially in house building. Where skilled labour is available, wage inflation has also been a serious issue, hindering the viability of many sites.

“In the private commercial sector, the largest construction sector, there are still many projects in the pipeline due to contracts that were signed 18-24 months ago. However, sharp rises in costs since then, due to a lack of skilled labour, have adversely affected margins and meant that many projects are on hold for the moment whilst contractors go back to clients and renegotiate prices.”

“Overall, recovery is never a straight line and there are always a few bumps and scrapes along the way. Projects in the pipeline across most construction sectors suggest that activity in the industry will rise in 2016 and our forecasts anticipate 4.2% growth in total construction next year, driven by recovery in house building, commercial and infrastructure activity. Skills shortages, however, are proving to be a key issue constraining growth for the industry.”

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