Confidence returns to North East Construction

Durham Milburngate. Image Source: DPP Planning

Confidence is slowly returning to the construction industry in the North East, but contractors working there will need to be selective.

Glenigan’s market analysis shows that the underlying value of starts in the North East rose 20% last year. This has helped transform a regional industry that was rated the most unstable in the whole of the UK by insolvency body R3 back in 2016.

Andrew Haslam, chair of R3 in the North East and head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “The North East construction sector, which was the worst-performing of its peers anywhere in the UK not so long ago, has now climbed up to fifth place [in the national rankings] and is doing better than the national industry average.”

Residential weakness

Around a third of all projects by value starting on site in the North East last year were in the residential sector according to Glenigan’s research. However, this total was down 18% on 2017 and this weakness has continued. National House-Building Council data shows that starts on new homes in the North East fell 11% in the three months to April 2019.

“Residential work remains key but the region has lagged other parts of England in terms of house price growth,” says Glenigan economics director Allan Wilén, who suggests that growth will be stronger in other sectors.

Education boom

Education construction work grew the fastest in the North East last year. Work has been slower coming through in 2019, but higher education projects are expected to be buoyant in the longer-term.

More than £750 million-worth of construction work is expected to materialise through the North Eastern Universities Purchasing Consortium framework. Universities such as Durham, Newcastle, Northumbria, Sunderland and Teesside will use the agreement to procure major building projects.

Some major civil engineering projects are also coming on line such as the £130 million Downhill Lane junction scheme on the A19/A184 (Glenigan Project ID: 04205891). This job is being built for Highways England by Costain and is the largest project in the North East where a construction contract has been awarded in the past 12 months according to Glenigan’s industry analysis.

The contractor to win the most work in the region is local outfit Tolent. The Tyneside-based firm, which also has offices in Leeds and London, has an order booked totalling £219.5 million for the 12 months to Q1 2019.

Tolent’s order book was recently swelled by a deal for the first phase, worth £84.5 million, of the £120 million Durham Milburngate riverside mixed-use development for Arlington Richardson Development Partnership (Project ID 18132987).

“This project is one of the most significant wins in the history of our business, says Tolent’s chief executive officer Andy McLeod.

Durham Milburngate includes 5,000 sq m of speculative office work and Glenigan’s data shows that this sector is reviving in the North East. The value of office work given planning permission in the five months to May 2019 is greater than the whole of 2018.

Health and retail work in the pipeline has also strengthened, while the value of industrial approvals leapt 140% in 2018.

Overall starts in the region leapt 47% in the three months to May 2019 according to Glenigan’s market research. This rise is expected to fizzle out over the course of the year but some sectors seem certain to defy this gloom.