North East set to defy national slump

Construction activity in the North East is finally picking up as a resurgent residential sector drives an increase in project starts. Last year, the region suffered the biggest fall in project starts of any part of the United Kingdom and the construction industry in the North East was labelled the most unstable in the UK according to insolvency body RS, but this is changing.

Glenigan economics director Allan Wilen explains: “Despite a 26% fall in the underlying value of project starts in the North East in the three months to October 2017, the near-term prospects remain positive.

“The planning pipeline strengthened by 22% in the most recent quarter and there are indications that in the private sector, particularly housing and commercial work is picking up.”

In the first half of this year construction output in the region was pushed upwards by public housing and infrastructure work according to the Office for National Statistics with output falling in the private housing and commercial sectors but this is changing.

National House-Building Council (NHBC) data shows that applications to build new homes in the North East surged 34% in Q3 2016 after applications to start 2,078 homes were received by the NHBC. This rise comes as house prices in the region, which have typically lagged the rest of the UK, start to pick up.

According to the Nationwide, house prices in the North of England are now rising ahead of the national average. In Q3 2017, the average price of a house sold in the region was £127,213, which was up 3.8% on the second quarter of this year. The national rise was 2.8%.

This is improving confidence and housebuilders are looking to expand their development pipelines.

In Q2 2017, the number of units securing planning permission in the North East surged 67% to 4,160 according to Glenigan.

Commercial construction activity is also rising and leapt 91% in the second quarter, as starts were made on £0.4 billion-worth of projects according to research from JLL and Glenigan. This rise came as nationally commercial activity fell 9.7%.

Major commercial projects in the pipeline in the North East include a £175 million plan from developer Haworth to redevelop a former Rio Tinto smelting plant near Ashington in Northumberland.

This project secured planning permission in October, while a proposed International Advanced Manufacturing Park in Sunderland has been designated a ‘nationally significant infrastructure project’ by the government. In October, South Tyneside Council and Sunderland City Council chose Henry Boot to develop the site, which is expected to bring £300 million-worth of private sector investment over the next decade.

A swathe of office work, in particular, is bubbling through the pipeline with the underlying value of projects in this sector rising 93% in the first 10 months of this year, which further increases prospects for a strengthening of the North East’s construction industry.

Mr Wilen concludes: “After a 27% fall in starts in the North East last year, in our latest forecasts we expect to see an increase of around 7% and the region to remain in positive territory, albeit at a slightly more subdued level, next year.”