Peaks and troughs continue for the construction industry
The construction industry continues to set records even in spite of “persistent pressures”.
Latest analysis from industry commentators shows both peaks and troughs in activity as planning applications and approvals, contract awards, and project starts are all reviewed.
Sectors like Residential show promising signs for the year ahead, including setting new records for post-pandemic activity, while others, like Infrastructure, continued to be buoyed by public sector spending. But sectors like Hotel & Leisure continue to fall behind, and others appear to be yo-yo-ing.
Rise of residential construction – Barbour ABI’s view
2022’s strong start for contract awards continues at pace. In its monthly Snap Analysis, Barbour ABI reported that £8.6bn of contracts were awarded in March, setting a new record for Q1 and following February’s already-impressive £7bn.
This time it was the Residential and Commercial sectors turns to lead, with £3.5bn and £1.3bn respectively, giving each the highest monthly figures for contract awards since pre-pandemic.
Analysts at Barbour ABI commented that this is particularly reassuring given these sectors’ “sensitivity to wider factors” and the construction industry’s ongoing issues with supply chains and spiralling costs.
London continued to hold the lion’s share of these contract awards, at 29.6%, followed by East of England, the South East, and Yorkshire & Humber seeing just under 10% each.
Residential also led the way for planning approvals in February, with its £4.6bn making up nearly half of the total £9.6bn projects granted permission. This was a leap from previous months, setting another post-pandemic record for the sector.
These figures are all the more encouraging for Residential when set against figures for the sector’s limited project starts in the three months to March, as covered by the Glenigan Index – see below.
Meanwhile other sectors continued their recent trends, including high values of planning approvals for Industrial and moderate numbers for Commercial.
While planning applications now set the stall for the remainder of the year, these continue to fall below average levels.
Barbour ABI commented that Residential appears to be “taking a pause” in this respect, with applications falling by 20%. Bucking this trend are Industrial, with warehousing still growing, and Infrastructure – see Sector Spotlight below for more insight.
Sector spotlight: Infrastructure
The Infrastructure sector has established a strong pipeline of work for the year ahead, largely thanks to new energy and transport projects.
A further £2.2bn in contract awards were reported for the sector in March, primarily from a CHP plant in London and the M54-M6 link road. For planning approvals, the sector saw a more modest month, with its £1.5bn of activity sitting at more normal levels compared to previous months, again largely down to energy projects.
HS2 is primarily behind the sector’s high values, as the Phase 2B planning application – a £17.2bn project – went in in March. On top of that, £1.4bn of other project plans were submitted last month.
However, analysts say Infrastructure’s contributions don’t quite make up for overall lower planning application figures in other sectors, put down to wider geopolitical and economic concerns impacting the construction industry.
Recent hikes in steel prices are expected to have an effect on projects in the near-term.
“Persistent pressures” – Glenigan construction review’s take
Concerns about slowed pace for the construction industry were echoed in the latest Glenigan Construction Review, reflecting activity to the end of March.
Analysts noted that project starts have now fallen back by almost 25% compared to 2021 levels. They slumped significantly for Residential, by 32% compared to 2021, by more than a third for Infrastructure, and also fell back for Retail and Health.
“Persistent inflationary pressures” were cited as impacting these sectors’ underlying project-starts and, according to Glenigan’s analysis, main contract awards and detailed planning approvals also dropped in the period. Though overall figures remain “relatively high”, it warns that rising fuel and energy prices will likely hinder any rapid recovery.
Major project approvals were the only area to see growth in Glenigan’s reporting period, compared to both the previous quarter and the same quarter in 2021, up by 6% and 2% respectively.
Despite drops everywhere else – with project starts, major project starts, detailed planning approvals and main, underlying and major contract awards all falling below comparative 2021 levels – overall construction output increased modestly during the three months to February, Glenigan reported.
Output was up by 7.4% compared to 2021 according to data from the ONS, driven by Industrial and Residential-related works of repairs and maintenance works, and public and private housing projects.
Taking this wider view on output, particularly within the context of those global geopolitical and economic pressures, is perhaps the most sensible take for those in the construction industry currently. Figures for the first quarter of 2022, from both Barbour ABI and Glenigan, have shown that despite ongoing volatility there is still much to be positive about.
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