Construction sectors forecast for growth

The underlying value of construction project starts will fall by 6% this year according to Glenigan’s latest construction industry forecasts, but the education, health and civil engineering construction sectors forecast for growth.

Glenigan’s latest forecasts predict that the fall in construction starts will ease next year but the outcome of Brexit will be key.

Glenigan’s economics director Allan Wilén explains: “We are anticipating some retrenchment in project starts over the next couple of years and the reason is the wider economy.”

“In the initial aftermath of Brexit, there was a boost to overseas earnings but the City are looking for decisions from manufacturing in terms of decisions.

“We have also seen increased pressure on consumer spending, which is having some impact on the housing market.”

Revival in health starts

The largest growth this year is expected to come from the health sector with starts forecast by Glenigan to rise 15% this year.

Mr Wilén says: “There were health projects deferred due to the snap general election. Those projects are now going ahead. There is also more money in the NHS. The challenge is how much of that money will be used for capital investment.”

Civil engineering work is expected to increase by 8%, as construction schemes such as the High Speed 2 rail link and the Thames Tideway project get underway.

The only other sector where construction starts will rise this year is education with an 11% increase this year boosted by student accommodation work.

“This has been a growth area for a number of years and the development pipeline is strong,” adds Mr Wilén. “There is strong demand from students and investors for these schemes with the backing of universities.”

A trend for younger people to continue renting after leaving university is expected to drive the built-to-rent work in the private housebuilding sector. Mr Wilén adds: “This is a natural move from student accommodation and there is a strong pipeline of work here too.”

Glenigan’s industry analysis shows more than £700 million-worth of PRS projects comprising in excess of 4,500 units starting on site in 2017.

Housing weakness

Despite the growth in private rented work, private housebuilding construction starts will fall by 13% this year. There will also be a double-digit fall in social housing. Improvements are expected in both in 2019, although only social housing is expected to grow, and then only marginally.

However, Peter Andrew, deputy chairman of the Home Builders Federation, said that poor weather earlier this year slowed work on site and that the underlying scenario for the private housebuilding sector remains strong.

Mr Andrew said: “Planning permissions are very strong. We have been trending for the last 12 months of 340,000 to 350,000 consents for new homes per year and that trend is continuing.”

Glenigan’s data bears this out with the value of private residential planning approvals rising by 6% last year.

The office sector will also improve in 2019 despite an expected 7% drop in the value of construction starts this year.

Jon Neale, head of UK research at Savills, said: “In 2019, companies will be facing a real shortage if they are looking to move. Developers will look at that and say ‘should we be looking to build again?' and volumes will come back”

After a year of uncertainty, next year will bring gradual but fragile improvement across the industry according to Glenigan’s forecasts.