Construction growth slows at start of 2014 but industry maintains strong position

• Glenigan Index for January up 4% year on year, driven by continued rises in infrastructure project starts.
• Non-residential index fell by 2% over three months to January due to slowdown of industrial and retail sector growth.
• However activity in the office sector continues to rise at an increasing pace - up 63% compared to the year before.
• The value of main contracts awarded in final quarter of 2013 was 21% higher than previous year.
• These figures show that “the industry is in a stronger position heading into 2014 than at this stage last year”.

Construction growth dipped slightly at the start of 2014 due to a slowdown in the industrial and retail sectors, but market prospects remain strong according to industry analysts Glenigan.

The Glenigan Index, which covers the value of projects starting on site from November 2013 to January, is up 4% - driven primarily by continued expansion within the infrastructure sector.

The rate of growth has fallen compared to the 15% rise recorded in the three months to December 2013, with a 2% drop in the value of the non-residential index, as the pace of industrial and retail activity decelerated. The sectors both saw double digit growth in project starts during the third and fourth quarters of 2013, but this rate slowed to 4% over the last three months.

However, green shoots of recovery remain elsewhere in the industry. Activity in the office sector continues to rise at an increasing pace, with starts during the three months to January 63% higher than a year ago.

Civil engineering projects also continue to strengthen, with the value of underlying infrastructure starts 35% higher than a year ago.

The utilities sector showed 74% growth compared to the three months to January of 2013, during which period starts had declined by 23%, with further rises anticipated to support growth in civil engineering workloads.

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

Commenting on the figures, Allan Wilén, Economics Director at Glenigan, said: “While the rate of growth at the beginning of the year suffers from comparisons to the very positive headline figures in the final quarter of 2013, the January Glenigan Index shows continued growth in private sector activity, with further rises in office, retail and industrial starts painting a picture of sustainable private investment-led growth in construction output.”

He added: “Glenigan data shows that the value of main contracts awarded in the final quarter of 2013 was 21% higher than a year ago.

“Strong rises were seen in the value of contracts awarded for office, industrial, retail projects, and the value of utilities contracts awarded was more than double the level in the final quarter of 2012. This supports reports from contractors of strengthened order books and shows that the industry is in a stronger position heading into 2014 than at this stage last year.”

The value of residential starts fell in the three months to January, as private housing project starts dropped by 26% compared to the same period a year ago. This contrasted with continued growth of social housing starts, up by 25%. These figures suggest that, in the short term, the value of new private housing projects is not keeping pace with the expansion of last year. However Glenigan figures suggest that output will remain strong as developers build out existing sites and look to accelerate new completions.

Allan said: “Despite the recent slowdown in new private housing starts, we anticipate continued output growth due to work on existing sites.

“In addition, the flow of projects receiving planning approval has been strong, suggesting developers are having some success replenishing their banks of prospective projects.”

In the sectors most dependent on government funding, the underlying trends of last year continued to develop. Health project starts fell by 18%, following a 10% drop last year, while community and amenity starts were down by 44%, leading on from a flat 2013 for the sector.

In contrast, the education sector continued the strong growth seen during 2013, with a 24% increase in project starts over the last three months.

With the rate of growth slowing at a national level, the West Midlands, South West, East of England, North East and Yorkshire and Humber regions all saw starts decline compared to the levels of a year ago. The most severe drop was felt in the South West, which saw a 29% decrease.

London saw a modest rise of 2%, while strong double digit growth was seen in the South East, East Midlands, North West and Scotland.

The highest percentage growth was seen in Wales and Northern Ireland, where new starts are recovering from low levels seen at the turn of 2013.

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