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Construction figures on the increase across February

Spearheaded by strong performances from the housing and hotel, leisure & sport sectors, overall contract value for the construction industry in February reached £6.4 billion based on a three month rolling average, a 15.4 per cent increase on the same month last year.

According to the latest edition of the Economic & Construction Market Review from industry analysts Barbour ABI, contracts for housing projects reached £2.7 billion in February, the same figure as January 2017, which are the best performing months for residential building since the economic downturn. Coinciding with the strong housing figures, the hotel, leisure & sport sector construction contracts reached £736 million (see figure 1.1) on the month, a substantial 105.3 per cent increase compared to February 2016.

Barbour ABI

Looking across the other sectors within construction; Infrastructure accounted for £1.48 billion worth of construction contracts on the month, a 20.8 per cent increase on January. Commercial & retail projects also increased month on month by 17.5 per cent – the highest since September 2016, although values in the sector remain lower than previously when viewed over the longer term.

However it was the industrial sector that accounted for the most disappointing figures in February, with a 35 per cent year-on-year decrease and its lowest monthly total since October 2014.

Whilst the value of construction contracts remained very strong on the month, the number of projects saw a decline of 19.6 per cent compared with January. Larger, more valuable projects were commissioned in February, including projects such as a £400 million Port of Dover job and the Trafford Park Metrolink extension, valued at £350 million.

Commenting on the figures, Michael Dall, Lead Economist at Barbour ABI, said “After recent slumps in the infrastructure and commercial & retail sectors, it was encouraging to see both bounce back and produce encouraging figures in February, alleviating some of the pressure away from housebuilding.”

“With the hotel, leisure & sport sector recording its highest construction contract value in years, it will give the sector a well needed confidence boost, thanks greatly to a £400 million holiday resort, another major project given the go-ahead in February, a trend that made last month a positive one for construction.”

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UK house prices to increase by 3% in 2017

House prices in the UK will see an average increase of 3% over the course of next year as the number of transactions stabilises, according to the RICS housing forecast for 2017.

Forecast in brief

  • Transactions set to stabilise in line with recent trend, but fall short of full year 2016 outturn
    Supply shortfall to continue pushing prices higher with prices to increase by 3%
    Rents likely to increase by 2-3% across the UK in 2017

Need for more properties

Following on from the 2016 forecast, the supply pipeline or lack of it is at the forefront of the analysis and dominates the residential market. While there is an improvement, the legacy of building on an insufficient scale has left the average inventory on estate agents books close to a historic low.

What’s in store for 2017?

Looking forward, transaction activity will stabilise and is likely to come in between 1.15 and 1.2 million, a little below the 1.25 million likely to be recorded for the whole of 2016. The prediction for 2017 reflects the trend over recent months.

House prices are predicted to rise across the whole of the UK in 2017 with an average increase of 3%. East Anglia is likely to continue its trend during 2016 and alongside the North West and West Midlands is likely to record gains higher than the national average. Meanwhile, prices in Central London look set to stabilise after recent declines, with support provided by the weaker exchange rate encouraging foreign buyers.

Simon Rubinsohn, RICS Chief Economist said “Although recent announcements by the government on housing are very welcome, the ongoing shortfall of stock across much of the sales and lettings markets is set to continue to underpin prices and rents. As a result, the affordability challenge will remain very much to the fore for many. Meanwhile the lack of existing inventory in the market is impacting the ability of households to move and will contribute toward transaction activity over the whole of 2017 being a little lower that in the year just ending.”

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