Glenigan Index of construction starts to end of November 2022

November wraps up a weak autumn for construction-starts

• Underlying work commencing on-site falls 11% against the preceding three months to November, 7% lower than a year ago.
• Residential construction-starts slip back 1% on the preceding three-month period and remain unchanged on the previous year.
• Non-residential project-starts down a fifth against the preceding three months and 16% compared with a year ago.
• Civil engineering work starting on-site decline a quarter against the preceding three months and 12% compared with 2021 levels.

The key takeaway from November’s Index is the the continued, steady decline in performance throughout the second half of 2022. November saw figures dip further, wrapping up a disappointing autumn and promising a particularly bleak winter sector-wide.

A deepening recession, continued construction materials inflation, and flatlining growth continue to hinder the industry, with the value of underlying work commencing on-site falling 11% during the three months to November to stand 7% lower than a year ago.

Hope for next year

A rapid succession of unsual, but highly disruptive external events over the past 12 months have taken their toll, and businesses across the sector are experiencing multiple waves of economic aftershocks.

Unfortunately, with the Russia-Ukraine war and resulting materials, energy, and fuel price inflation, unlikely to abate any time soon, a return to pre-COVID activity levels looks set to be delayed for some time to come.

Furthermore, the fallout from September’s ‘mini-budget’ and consequent economic uncertainty is still affecting confidence across the board, stagnating projects moving to site.

However, the market is showing small signs of stabilising, as evidenced by last month’s Glenigan Construction Review and an uptick in contract awards and planning approvals. Despite an overall weak autumn for construction-starts, there’s hope that a strong development pipeline will gradually build up momentum over 2023 helping to boost project-start performance by this time next year.

Commenting on the findings in the December Index, Rhys Gadsby, Senior Economist at Glenigan, says, “The poor performance in November tops a weak autumn for construction-starts in the UK. Given the economic turmoil domestically and globally, it was unsurprising that these latest figures should remain depressed. The cost of imported construction materials and supplies, skills shortages as well as a weakened pound and higher than expected interest rates continues to impact construction projects moving on-site.

“This tricky period will likely see us through to the end of the year, as the industry navigates these ongoing challenges. Going into 2023, we need to see more affirmative policy from the Government, particularly in critical areas such as housebuilding, to help stimulate the market.

“However, the industry can take hope from the promise of a strong development pipeline of contract awards and approvals built up over the last few months, which should help to stabilise project starts in the first few months of 2023.”

Drilling down into specific sector and regional analysis…

Sector Analysis – Residential

The value of residential construction work starting on-site weakened slightly during the three months to November. The value fell by 1% against the preceding three months but remained unchanged on a year ago.

Social housing project-starts also suffered, declining by a tenth against the preceding quarter and performing especially poorly (-29%) compared with 2021 levels.

In contrast, private housing construction-starts improved slightly, increasing 1% against the preceding three months and 9% on the year before.

Sector Analysis – Non-Residential

Most non-residential sectors experienced declines in project-starts against the preceding three-month period. Amidst the cost of living crisis and weakened consumer spending, hotel & leisure work starting on-site suffered during the three months to November, falling 30% to stand 40% down on 2021 levels. Health project-starts also experienced a weak period, tumbling 37% against both the preceding three months and the previous year.

Civil engineering work starting on-site faltered against the preceding three months, falling by a quarter to stand 12% down on a year ago.

Further echoing the downward trend, education (-11%) and industrial (-15%) experienced relatively small declines against the preceding quarter, falling 15% and by a tenth respectively against the previous year.

While office project-starts continued to drop, stalling on the strong performance observed at the start of the year, declining 12% against the preceding three-month period, its value actually increased 3% against the previous year.

In fact, offices (and private housing) were the only sectors to achieve growth compared with 2021 levels, pointing to small silver linings in some sector-specific areas of the construction industry.

Infrastructure experienced the steepest declines within the sector, with project-starts falling by a quarter against the preceding three months and 13% against the previous year. This decline can mostly be attributed to weakened utilities work starting on-site, which fell 23% during the three months to November to stand 8% down on the previous year.

Regional Outlook

Overall UK regional performance was poor, with every region in England suffering declines in project-starts.

Scotland was the only region to experience growth against both periods, with the value of project-starts rising 3% against the preceding three months and 4% compared with a year ago.

Construction-starts in London advanced 3% against the preceding three-month period but remained 8% lower than a year ago.

Similarly, the West Midlands experienced 5% growth during the three months to November but remained 3% behind 2021 levels.

London and the West Midlands were the only areas of the UK to experience growth against the preceding three months.

Less positively, project-starts in Northern Ireland fell sharply (-39%) against the preceding three months, but stood 13% up on a year ago.

The East Midlands performed particularly poorly, suffering a 23% drop against the preceding three months to stand 16% down on the same time last year.