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Good and bad news for construction last month

After more than two months since the Brexit vote, it’s good news for the residential construction sector, as the value of contracts awarded reached £1.7 billion in August, an increase of 13% compared to the same time last year, based on a three month rolling average.

According to the August edition of the Economic & Construction Market Review from industry analysts Barbour ABI, it was the residential and infrastructure sector that kept the industry on a steady pace last month, delivering £3 billion of the £5.5 billion total construction contracts awarded.

It should also be noted that residential construction across the first two post-Brexit months (July & August) are significantly higher figures than when compared to the same months in 2015.

However even with the strong results from the residential sector, it was not enough to mark an improvement for overall construction new orders as they were down to £5.5 billion in August, a month-on-month drop of £300 million, although this is traditionally a slower summer month.

The commercial & retail sector particularly struggled in August, experiencing a decrease of 43% compared to August 2015, which continues a poor run of performance over the long term for the sector.

Commenting on the figures, Michael Dall, lead economist at Barbour ABI, said: “The construction sector is yet to experience the full post-Brexit effects that were forecasted to occur after the result was announced. The mixed results from the residential sector has still been robust enough to keep the industry in a position to potentially grow in the near and long-term future.

“Developers are also keen to keep progressing with major projects, such as the £750 million Galloper offshore wind farm and the £150 million Greenwich Peninsula residential development commissioned this month alone, which in turn is helping to build confidence and provide a well needed boost across the industry.”

Read the full report here.
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Fresh warning sign for construction industry

New construction activity has fallen back into contraction, according to figures released today by industry analysts Glenigan.

The value of new projects starting on site was 4% lower than a year earlier during the three months to November. Housing, non-residential and civil engineering starts were all scarcer during the period compared to this time last year.

The amount of new commercial and industrial work was flat on a year earlier during the latest period. Growth in the industrial and hotel and leisure sectors offset falling starts of both office and retail schemes.

Commenting on this month’s figures, Allan Wilén, Glenigan’s Economics Director, said: “The latest evidence on commercial construction starts is disappointing given the continued strength of the economic backdrop.”

“However the forward pipeline is much more positive. In the office sector, for example, the value of work achieving planning approval has risen by more than 50% during the last three months.”

Less surprisingly, the public sector is continuing to hold back growth. The value of the health sector is forecast to fall by a quarter during the course of 2015 alone: during the latest three months starts were almost 50% down on a year earlier. The education sector is also in decline. Despite schools funding overall being ring-fenced, government capital programmes do not seem to be making a huge impact on the ground.

Private housing activity grew modestly, up 2% on a year ago. This rise was more than offset by the drag from the social housing sector, where starts were 9% down on a year ago. The sector is bracing itself for three years of reductions in rents. Plans for increased support of housebuilding have been aimed squarely at increasing home ownership, bringing little relief for the rented accommodation model championed by Housing Associations.

According to Mr Wilén: “The Chancellor’s Autumn Statement pledges on housing appear to be a further boon to the private housing sector. In the short term, activity may undergo a pause as developers assess how best to reap the potential rewards.”

The civil engineering sector also saw an 8% annual decline in starts, as growth in utilities work was unable to offset contracting infrastructure starts.

Most parts of the UK have been dragged backwards by weakening commercial and public sector construction. Northern England and the Midlands have led growth through 2015. However only West Midlands and the North East have stayed in the black; the North West, Yorkshire and the Humber and the East Midlands have all moved into decline in the latest figures.

London and the South East, by contrast, have returned to growth after being hit especially hard by an election hiatus and the slowing in the housing market earlier this year.

No such change in fortunes for the UK’s other constituent nations: Scotland, Wales and Northern Ireland have all failed to record growth since March 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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ONS question reports of ‘healthy growth’ in construction

News that we are experiencing strong growth in constructing has been brought into disrepute by new figures released by the Office for National Statistics (ONS).

The Markit/Cips Purchasing Managers’ Index for construction that was released last month clearly indicated a reassuring reading of 58.8; 50 being the point which separates expansion from contraction. Whilst down from 59.9 recorded in the previous month, the report still highlighted strong growth in construction, an industry that is accountable for around 6% of the UK’s GDP.

However, the latest GDP estimate made by the Office for National Statistics revealed quite the opposite to that being reported by Market/Cips, suggesting that construction output actually reduced by 2.2% in the three months to September.

So which report is right!?

Chief UK and European Economist for IHS Global Insight, Howard Archer commented the clear contradictions between the reports raised “considerable doubts” about the overall accuracy of the official construction data given by the ONS. He pointed out that other data compiled by Bank of England regional agents on construction also pointed towards growth within the sector, rather than reduction.

Vice President and Senior Economist of Markit, Tim Moore reaffirmed their own results, saying “The sector remains in rude health. Rather than acting as a drag on the economy, as suggested by recent GDP estimates, the sector is continuing to act as an important driving force behind the ongoing UK economic upturn.”

The ONS had been due to release a report comparing their own figures and those of Markit on 11 September, but this had to be cancelled for “operational reasons”.

Mark Robinson, the chief executive of the Scape Group warns that regardless of whether the industry has experienced growth or not this year, something must be done to attract new talent into construction if we are to sustain a healthy and vibrant industry long-term. He said “Much of the skilled workforce is due to retire in the next five to 10 years and if we can’t train enough new talent to replace them, the construction industry will struggle to deliver the new homes and infrastructure that both the community and the economy badly needs.”

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Commercial & retail construction at its strongest for more than four years

The total value for commercial & retail construction contracts in August were worth more than £1.5 billion, the highest in over four years, based on a three month rolling average.

According to the latest Economic & Construction Market Review from Barbour ABI, it was a busy August for the commercial & retail sector but in particular office construction, which dominated the sector for the month with 84 per cent of the total value of contracts awarded.

To put the growth of commercial & retail contract values into perspective, the last three months have each had more than double the value when compared to that in May. August also experienced an increase of more than 70 per cent when compared to the same month last year.

London led all regions with over 60 per cent of the total amount of commercial & retail contract values in August, including eight of the top ten biggest projects. Contracts for major office developments were finalised including the £150m Park Place development in Canary Wharf and the £100m Marble Arch project in Westminster.

Commenting on the figures, Michael Dall, lead economist at Barbour ABI, said “After an unstable start to the year, commercial & retail construction has picked up dramatically to the point where August has been the strongest month for more than four years.”

“It’s not surprising to see London dominating the sector once again. As a global city, we’re seeing more and more demand for office space in the capital, hence the massive projects awarded contracts this month. Even with the recent spike in office construction work being put on hold, this isn’t putting off investors rolling the dice with new projects looking towards the future and the potential gains to be made from London property.”

“Over the last three months and in particular August, demonstrates that there is a major demand for office space and willingness from investors to spend and commit to new projects. The long term growth for this sector is looking positive, and when commercial & retail is strong it can often be a sign that the economy as a whole is performing well.”

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