Hopes for brisk start to 2018 in key sectors

2017 finished on a brighter note than might have been expected for the industry with stronger starts in some of the key sectors expected to show promise in 2018, particularly civil engineering, industrial and private housing work.

Across the industry, the Glenigan index showed that starts in the three months to December rose 1 per cent on the period a year ago and were three per cent up on a seasonally adjusted basis. They were helped by a 2 per cent rise in residential starts, largely due to an upturn in private housing starts.

The picture has been reflected in the new year trading statements from the larger private housebuilders. Although share prices have been under pressure in the sector over concerns that margins may come under pressure, the UK’s largest housebuilder Persimmon recently reported that its legal completions in the second half of 2017 rose 6% to 8,249 and that it now has 375 sites to support sales over the Spring selling season. The firm has been adding to its regional network, most recently opening new businesses in north Nottinghamshire and Suffolk.

A mark of Persimmon’s confidence has been its land acquisition programme – acquiring some 17,300 plots over the past year at over 80 locations – as part of a wider trend for housebuilders to replenish their land banks. Barratt Developments also said recently that the land market remains attractive and that it expects to approve over 20,000 plot purchases during its 2018 full year.

The latest Glenigan/HBF survey also suggests that the residential development pipeline remains strong with approvals for 90,400 units in the third quarter, 6 per cent on the previous three months and 9% on the period a year ago. Private sector approvals rose 17% on a year ago and across the industry, schemes of ten or more units accounted for 87% of the approved units.

Infrastructure work is also gathering momentum. The Glenigan Index showed a 12% rise in underlying civil engineering projects starts in the fourth quarter, although there was a slowing in utilities work. The longer term outlook also remains good in the civils sector, particularly in roads. Over £11 billion of the £15 billion capital spend pledged for England’s roads and motorways in the Government’s road investment strategy has now been committed. Major Highways Agency schemes in the pipeline include the £349 million ‘all-lane running smart motorway’ upgrade to the M1 in the East Midlands, where work is set to start in May 2018; the £150 million A19 Testos junction improvement in the North East due to start next January and the £290 million A30 Chiverton to Carland Cross upgrade, due to start in 2019/20.

The 17 per cent rise in industrial building project starts seen in the fourth quarter in the Glenigan Index suggests that the demand for logistics and warehousing space to accommodate online sales is likely to help sustain the sector in 2018.

As well as large warehouses near transport hubs, new logistics space within cities could also offer potential. A recent review from Aviva Investors on the outlook for real estate in 2018 points to the need for ‘last-mile delivery hubs in in inner-city locations’ and suggests strong occupier demand and constraints on supply means urban logistics assets are likely to see continued capital growth.