Green shoots in key construction sectors lift optimism for 2024

The outlook for key construction sectors in 2024 brightened over the Christmas break.  

The recent fall in inflation – down to 3.9% in the year to November – has raised the likelihood that the new year will bring lower interest rates, which should give a boost to building activity across the private sector. Meanwhile, the prospect of a general election this year and renewed political focus on housing shortages bodes well for publicly funded construction, particularly social housing.

These factors should reinforce the trends highlighted in Glenigan’s recent Construction Industry Forecast 2024-25 which concluded that the industry could look forward to 8% growth in underlying project starts (under £100 million) in 2024 and a further 7% in 2025.

Recent developments have bolstered prospects in some of the industry’s bright spots which are identified in the Glenigan Forecasts for 2024, such as office refurbishment – particularly in London – industrial, health, education, and civil engineering.

London office development ‘roars back’

Contractors working in the capital’s office renovation and office refurb sector are set for a busy start to the new year. The London office development market has ‘roared back’ with a record 5.1 million sq. ft of new construction starts – the highest volume on record – over the six months to the end of September, according to Deloitte’s London Winter Office Crane Survey.

It reports that there are 124 schemes under construction across central London as of end-September, involving 15.7 million sq. ft of space, a 9% rise on the previous survey taken six months earlier.

Led by a rebound in the City of London, it records work starting on 43 schemes in the half to September, the highest since the survey was launched in 2005. The volume of new space started was up 16% on the previous survey, whilst the average size of new schemes starting rose to around 119,000 sq. ft., up from 88,000 sq. ft.

Office refurbishment was particularly buoyant with work starting on a record 34 new schemes, involving 3.3 million sq. ft of space. The upturn has been driven by an expected tightening in Minimum Energy Efficiency Standard regulations along with strong demand for Grade A office space as tenants seek more sustainable accommodation.

The survey found developers expect a ‘relatively stable’ London office development pipeline and a majority expect to achieve operational net zero across their portfolios by 2040.

The surge in new office work in the capital chimes with the latest Glenigan Forecast which predicts a 6% increase in office starts nationally this year and a further 13% in 2025. Meanwhile, Glenigan data showing a strong office development pipeline in London – with underlying approvals worth around £1.5 billion over 2023 – suggests the outlook remains positive.

Large office developments are back in fashion in the capital. Work has recently started on five large (300,000 sq. ft-plus) office schemes in London and Deloitte notes that further skyscrapers will be added to the City’s skyline after three large developments recently won planning permission.

Glenigan data provides details on the key City office developments in the pipeline. They include a £400 million office scheme at 50 Fenchurch Street (pictured) for Axa Investment Managers where detailed plans have been granted and Mace and Multiplex Construction Europe are the bidders with work due to start next summer (Project ID: 19410738).

Meanwhile, piling work is set to start early this year on Evergo Tower, a £429 million office development at 120 Fleet Street where Lendlease is the design & build contractor and which involves over 78,000 sq. m of new space (Project ID: 21327874).

Industrial promise

New industrial construction offers another promising source of new work for contractors in 2024. After a tough time for the sector in 2023, the latest Glenigan forecast predicts that the value of underlying industrial project starts will increase by 17% this year and by a further 21% in 2025.

Any early reductions in interest rates should bolster the growing demand for warehousing and logistics space which is driving demand in the sector.

The 12 new investment zones created in the government’s last Spring Budget could also provide opportunities for new contracts for the manufacturing sector.

In a recent report on the industrial & logistics sector, property agent CBRE notes that steps to encourage investment have begun. In July, for example, South Yorkshire was named as the first zone to focus on advanced manufacturing, and having secured an initial £80m investment, the area is set to create more than 8,000 jobs by 2030.

One manufacturing-related project set to get underway in the area this year is the £12 million University of Sheffield Advanced Manufacturing & Testing Facility where Henry Boot is the main contractor and work on the 31,000 sq. m project is due to start this summer (Project ID: 21529581).

Social housing opportunities

The drive for more affordable homes bodes well for opportunities in social housing construction activity. Glenigan is forecasting a 7% rise in underlying social housing project starts this year, followed by a further 5% increase in 2025.

Prospects in the social housing sector received a boost before Christmas with the £64 billion funding package for councils unveiled by Levelling Up Secretary Michael Gove. It includes a new homes bonus to be paid to local councils to incentivise housing growth in their areas along with an extra payment for providing affordable homes.

Two regions where prospects in the sector are looking brighter are the North West (where the value of detailed social housing planning approvals rose to around £900 million in 2023) and the West Midlands (where they rose to around £700 million).

One major housing association project in the North West where tenders have been returned and work is due to start early this year is a £346 million National Building Improvements Framework for Fusion21 at Prescot on Merseyside. It involves a wide range of social housing improvements and is set to run for four years (Project ID: 23208072).

Meanwhile, the prospect of lower mortgage rates should speed up the pace of recovery in private housing construction. After tumbling by almost a quarter last year, Glenigan is forecasting that the value of underlying private housing project starts will recover by 4% this year and by a further 11% in 2025.

Michael Gove’s reforms to the planning system unveiled before Christmas – which involve more protections for the green belt but also incentives for councils to draw up local plans – drew a mixed response from housebuilders.

But government measures to improve the performance of the planning system and the creation of so-called Planning Super Squads – teams of leading planners and specialists to unblock major developments – should be positive for private housing activity.

Gove’s announcement that he is to review the London Plan to look at how changes to policy could speed up the delivery of urban sites bodes well for new private housebuilding in the capital too.

Meanwhile, government plans to create a new urban quarter in Cambridge and its vision for development around the city involving tens of thousands of new homes should bolster new work prospects in the East of England. Glenigan data details the hugely ambitious £19.9 billion Cambridge 2040 Masterplan as envisaged by Michael Gove involving some 150,000 homes along with R&D and laboratory space (Project ID: 23400193).

Glenigan data also provides examples of private housing developments around Cambridge which are set to get underway in 2024. These include a £19.9 million scheme of 77 homes and 33 flats at Farehurst Park in the city where Hill Group is the developer (Project ID: 14372913).

Civil engineering bright spots

Contractors in the civil engineering sector – where Glenigan is forecasting a 17% rise in underlying project starts in 2024 followed by a 5% increase in 2025 – should benefit from more utilities-related work, particularly in water, electricity generation and distribution, and broadband connectivity.

Glenigan data shows that detailed planning approvals for utilities work were worth £6.9 billion in the three months to November; around seven times the level in the period a year earlier and which augurs particularly well for activity in the sector in 2024.

Meanwhile, the work pipeline in the energy sector received a boost before Christmas when developer Orsted said it was going ahead with the world’s biggest offshore wind farm, the £8 billion Hornsea Three development off the Norfolk coast (Project ID: 16095470).

Universities worth studying

Construction on building projects for universities is one area helping to keep contractors busy in education-related work; a sector where Glenigan is predicting a 13% rise in project starts in 2024. In the three months to November, project starts for universities were worth £283 million, nearly triple the level of the period a year earlier and accounting for almost a third of the work started across the education sector.

One major project in the sector where applications to tender are being invited is a £16 million extension at the University of Birmingham as part of the city’s health innovation campus where work is due to start next summer (Project ID: 22369320).

Health outlook

Construction activity in the health sector this year should benefit from the government’s need to show evidence of good progress on its NHS investment and hospital rebuilding programme ahead of an election.

Glenigan is forecasting that the value of underlying starts in the health sector will rise by 11% in 2024 with a further small rise in 2025. Significant new NHS projects due to get underway this year include the £43.4 million Christie Hospital Advanced Scanning and Imaging Centre in Greater Manchester. Tenders have been returned and work is set to start in the spring on the 9,420 sq. m facility and run for 18 months (Project ID: 23109660).

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