Construction growth eases but signs point to positive times ahead

• Glenigan Index for July up 11% year on year, sustaining growth across all main sectors of the industry.
• Growth in residential project starts overtaken by infrastructure sector – up 10% and 17% respectively. 
• Double-digit growth for industrial, office, hotel and leisure and utilities sectors.
• Chancellor’s ‘Northern Powerhouse’ vision not matched by recent construction activity as project starts fall back in the North West and Yorkshire and the Humber.

Construction activity slowed in the three months to July, but new figures from intelligence providers Glenigan suggest the industry will continue to play its part in fuelling the UK economic upturn.

The Glenigan Index, which covers the value of projects starting on site from April to June, is 11% higher than a year ago – easing from 20% recorded last month but sustaining growth across all main sectors of the industry.

Though rising output continues to be fuelled by housing, the most recent Office for National Statistics (ONS) figures show that commercial and industrial work are contributing to growth in the industry as the effect of projects starting through the second half of 2013 filters through.

The Glenigan lead indicator shows that growth in the value of residential starts, up 10%, is being matched in the non-residential sectors and bettered by underlying infrastructure work, which has seen a 17% rise this month.

Indeed, Glenigan data reveals bright spots across the industry, with industrial, office, hotel and leisure and utilities all seeing double digit increases in the underlying value of project starts.

Commenting on this month’s figures, Allan Wilén, Economics Director at Glenigan, said: “Significant upward revisions to the ONS’ estimates of construction output could add an additional 0.1% to the UK’s first quarter GDP growth, and the latest Glenigan Index figures suggest the industry will continue to play its part in fuelling the UK economic upturn during the second half of the year.

“The continued flow of new private housing developments starting on site is positive and follows a strengthening in planning approvals that suggest that government planning reforms are improving the supply of sites for development.

“However, the boost to overall output from social housing work may wane. Project starts are currently undergoing a period of stabilisation, having fallen back by 1% over both the last three and six month periods.”

The easing in the pace of non-residential expansion, down 14% on last month, is largely due to a fall in the value of retail starts. The value of new retail projects has been roughly flat over the last 18 months as rising numbers of small-scale store refurbishment projects and renewed development of higher profile shopping centre schemes have been offset by supermarkets dialing back their major store development programmes.

By contrast, new office activity remains healthy and the hotel and leisure sector is gaining momentum, with starts rising by 35% over the last three months.

Last week Chancellor George Osborne floated proposals for a third UK high speed rail link, between Manchester and Leeds, and set out his vision of the north becoming an economic “powerhouse”. However Glenigan data indicates the current picture, at least from a construction perspective, is not quite so positive.

The latest three-month period saw project starts fall back in the North West and Yorkshire and Humber by 4% and 13% respectively. The North East saw starts increase for the tenth consecutive month, but from a particularly low base.

“The North West, North East and Yorkshire and the Humber entered 2014 as the three English regions furthest from their 2007 peaks in terms of the underlying value of project starts,” Wilén said.

“Further growth through the year should see the North East catch up with its regional neighbours, though we also expect a return to expansion across the rest of Northern England.”

He added: “Excluded from our underlying trend is the Central Square office, retail and leisure scheme in Leeds, which exemplifies strengthening developer confidence outside London, especially in Manchester, Leeds and Birmingham.”

North of the border, activity in Scotland continues to ramp up despite the political and economic uncertainty surrounding the fast approaching independence referendum. The underlying value of starts rose by 15% year on year in the most recent three months, though this eased from levels around 30% seen over the last nine months.

The monthly Glenigan Index is based on extensive research of every construction project starting in the UK over the previous three-month period, providing an indicator of developing activity and future output in the industry.