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Construction projects starts upturn

  • Starts in the three months to April rose 7% against the preceding three months and were 4% higher than a year ago
  • Residential starts were 4% lower than a year ago and unchanged on the preceding three months
  • Non-residential project starts were 3% higher than a year ago, lifted by a rise in commercial work
  • Civil engineering starts rose 18% against the preceding three months and were 50% higher than a year ago

The value of work starting on site during the three months to April was 4% higher than a year earlier, according to the latest Glenigan Index. Starts were also 7% higher against the previous three months on a seasonally adjusted basis.

Glenigan

Commenting on this month’s figures, Allan Wilén, Glenigan’s Economics Director, said “An improved April performance has provided a spring time lift, with the residential, non-residential and civil engineering sectors all seeing a rise in projects starts. Private sector and infrastructure projects provided the upturn in project starts, while government funded areas such as health, education and social housing remained weak.

“Private residential starts steadied during the three months to April. Project starts had been weakening since last autumn against a backdrop of fewer property transactions and weaker house price inflation in the wider housing market. However private housing starts rose 3% during the three months to April against the preceding three months on a seasonally adjusted basis, although starts were 7% down on a year ago. Social housing starts fell 6% against the three months to January, but were 4% up on a year ago.

“Overall non-residential projects rose 3% against the preceding three months on a seasonally adjusted basis and were 11% higher than a year ago. Private sector starts picked up from their recent weak performance with office, retail and hotel & leisure work rising during the three months to April rising by 13%, 39% and 32% respectively against a year ago. In contrast government funded sectors remain weak, with education starts 20% down on a year ago, and health and community & amenity sectors dropping by 6% and 41% respectively.

“Civil engineering starts rose 18% against the three months to January on a seasonally adjusted basis and were 50% higher than on a year ago. The rise in project starts was driven by a 35% rise (seasonally adjusted) in infrastructure work against the previous three months, while utilities projects rose 4% during the same period.

There was a sharp variation in the industry’s performance across the UK. Regionally the sharpest falls were in the East of England and Scotland with declines of 18% and 22% respectively. Starts in the North East, North West, West Midlands and South West also declined. In contrast, the value of starts in London, Wales and Northern Ireland were 85%, 50% and 97% higher than a year ago, while the East of Midlands, South East and Yorkshire & the Humber all saw double digit growth.

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Construction project starts forecast to steady in 2018

Glenigan expects the value of construction starts to stabilise in 2018, after the declines seen over the last two years, as construction clients adapt their investment plans to the changing political and economic environment.

Commenting on the prospects for the industry, Glenigan’s Economics Director, Allan Wilén said “The value of underlying construction projects has fallen back this year amid continued political and economic uncertainty, delays to public sector projects and a weakening in housing market activity.”

“Whilst a weak UK economy is forecast to constrain construction activity over the coming year, we anticipate greater stability in overall construction starts as strong growth in hotel and leisure, industrial and education work help offsets weakness elsewhere.”

“The industrial sector is forecast to be a growth area as technological and social changes reshape consumers’ retail habits and drive the demand for logistics space. We expect these structural changes to be a long term driver for warehousing and logistics projects as online retailing takes an ever larger share of retail sales and as retailers adapt to changing spending patterns and shopping habits. The Midlands, North West and parts of the South East of England are favoured locations for such facilities, offering good access to national transport networks and the UK’s major population centres.”

“The hotel & leisure is also forecast to be a growth sector over the coming year. Consumer spending on leisure activities remains firm and the sector is benefiting from the depreciation in the pound over the last two years which has boosted UK tourism and encouraged UK consumers to holiday at home.”

“Demographic changes are set to shape the pattern of construction activity. Increased investment is anticipated to expand the secondary school estate in order to accommodate rising pupil numbers, especially in the UK’s major conurbations. In addition universities are investing in new facilities as they compete for UK and overseas students.”
“Growth in these areas will help offset weakness in the private housing and office sectors.”

“Real household earnings growth has stalled due to weak wage growth and higher inflation. This is forecast to slow housing market activity, with weak new house sales holding back sector activity. The value of private housing projects starting on site is forecast to drop 3% next year as housebuilders prioritise building out current developments and open fewer sites.”

“Political and economic concerns arising from the EU referendum depressed office project starts during 2016 and 2017. These concerns are expected to persist as investors appraise the implications of Brexit and of slower UK economic growth for the demand for office space and rental values. Developments in the City of London and Docklands will be especially vulnerable with weaker demand for accommodation as financial institutions consider relocating operations to elsewhere within the EU.”

“Major infrastructure schemes, including, Thames Tideway, HS2 and Hinckley Point, are forecast to drive civil engineering activity next year. The value of smaller scale projects starting on site have fallen back sharply this year and are expected to weaken further in 2018 as investment is dominated by flagship projects.”

GLENIGAN

A full copy of the Glenigan Outlook Forecast is available to download here.

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Spring in step for Construction Starts in March

The value of work starting on site in the three months to March was 2% higher than during the same period a year ago, according to the latest Glenigan Index. On a seasonally adjusted basis, starts were also 2% up on final three months of 2016.

Commenting on this month’s figures, Allan Wilén, Glenigan’s Economics Director, said “A strong rise in project starts in March has offset earlier weakness and lifted the index for the first quarter of 2017. The increase is partly due to a bounce back in civils projects in March. In addition there have been encouraging increases in industrial, hotel & leisure, and health project starts.”

“Private residential starts for the three months to March were 6% higher than a year ago and 3% up on the previous quarter on a seasonally adjusted basis. This renewed strengthening in starts in encouraging and should help sustain sector activity during the current year. Looking further ahead higher inflation is set to squeeze household spending and to dampen activity in the wider housing market. Against this weaker market background we anticipate a softening in private housing project starts during the second half of 2017.

“Non-residential projects during the first quarter were 7% up on a year ago and 10% up on the previous three months on a seasonally adjusted basis. The recovery in non-residential starts has been driven by increases in industrial, hotel & leisure and health projects starts. The 27% rise in project start is especially positive and suggests that investors’ are now pressing ahead with projects that were initially reviewed after the EU referendum vote.

“There was also a market improvement in civil engineering project starts during March, with an increase in both infrastructure and utilities work. Unfortunately the increases were insufficient to fully offset weak project starts during January and February. Civil engineering starts during the first quarter were 17% down on a year ago and remained a drag on construction starts as a whole.

At a regional level, the South East, North East and East of England together with Wales enjoyed double digit growth, with project starts during the first quarter being 27%, 19%, 14% and 13% up respectively on a year earlier. There was also renewed growth in the Capital, while the value of starts in the North West of England also improved. The value of project starts slipped back elsewhere; at 20% the West Midlands saw the sharpest drop in project starts during the quarter.

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Number of suspended projects on the rise

The number of projects being put on hold by clients is on the rise. At present, it appears to be smaller value schemes that are currently being suspended, with the value of underlying projects being placed on hold down on a year ago.

Glenigan has identified a 28% increase in number of projects being placed on hold during the third quarter of this year against the same period last year. In contrast the value of projects being suspended (excluding schemes of £100m or more) was 10% lower.

Whilst the number of projects being placed on hold remained subdued in July in the immediate aftermath of the Brexit vote, it has risen during August and September.

Looking across the sectors, the rise in the number of private residential, office and hotel & leisure projects being placed on hold suggests that clients may be reviewing the viability of some planned schemes post-referendum.

Oct25_On_Hold September_2016

However, the Brexit vote is not the only factor at work. The utilities sector has seen by far the sharpest rise in the number and value of projects being placed on hold. Indeed that sector has seen a sharp rise in suspended projects since the start of 2016 and, the number of projects put on hold in the third quarter was 92% up on a year ago. The sharp rise in suspended projects appears to be in response to the Government’s cuts in the feed in tariff rates for renewable projects; almost half of the projects are renewable energy schemes whilst a third are waste treatment projects often involving energy recovery.

Elsewhere there has been an encouraging decline in the number of projects being placed on hold, with fewer retail and social housing projects being suspended during the third quarter. Overall the latest on-hold project data highlights that volatile market conditions facing the industry and the need for firms to be able to identify and respond to new opportunities as they emerge.

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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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