Construction Industry Insights August 2022
Activity remains weak in the construction sector with the value of planning approvals falling. Despite the rising inflation, fragile consumer confidence and higher interest rates, July was another good month for contract awards.
The value of contract awards has increased by 13% for the second month running, providing some respite from the downturn. However, commentators caution that wider economic concerns remain though. Whilst material availability has eased, the sharp rise in energy costs coupled with recession fears mean ongoing challenges.
In our August insights, we look at the most recent findings from across the construction industry.
Insights from Barbour ABI’s Snap Analysis
Q2 saw relatively positive planning applications of £9.1bn per month. Planning applications were the least affected by the combined cost of living, inflation and Ukraine crisis with only a 4% fall in value over Q2. Whereas, the underlying value of planning approvals has fallen by 43% on a quarterly basis.
Planning approvals remained weak
Excluding the £20bn Sizewell C nuclear power station, the value of projects approved fell by 43% on a quarterly basis. Infrastructure’s £1.9bn supported the overall activity with further renewable generation projects.
The commercially sensitive sectors remained weak, particularly residential with a 22% drop in planning approvals in July, down to £800m.
Increase in contract awards – Back up to levels seen in Q1
Once again, July was another good month for contract awards. It provided some respite from the downturn, with £7.2bn contract awards.
Looking at the performance by region, Wales and London had a 60% and 79% increase in contract awards respectively. The North West continues to grow with 118 contracts awarded in July, a 145% increase from June. These were mainly industrial, commercial and medical construction projects.
Overall, the value of contract awards has increased by 13% for the second month running, reaching £7.2bn. Resulting in actively levels returning to the same levels as Q1, before the uncertainties regarding the cost of living crisis. However, Barbour ABI caution that this could be a ‘mini-early summer glut’ before a fall during the holiday season.
Commercially sensitive sectors show a step in the right direction.
Figures show commercially sensitive sectors have an increase in contract awards. The commercial sector increased by 90%, returning back to its previous high level of contract awards. The hotel & leisure sector doubled in contract awards after a difficult period.
Large mixed-use developments in London were driving activity in both the commercial and residential sectors. This propped up the overall residential sector, helping it to remain at a stable level.
Glenigan reports a rise in planning approvals in London
Similar to Barbour ABI, Glenigan reported positive signs for London’s construction pipeline. Market research shows that the underlying value of detailed planning approvals in the capital rose in 6 of the 11 sectors in Q2 compared to the same period a year earlier.
Although the overall value of work at an underlying level (projects worth below £100m) fell, there was an increase in both civil engineering and four building sectors. Hotel and Leisure saw the biggest increase in planning approvals.
Highest Performing Sectors in Quarter 2 in London
In Q2, approved social housing leapt 40%, bolstered by student accommodation. There was also £798 million-worth of office developments that secured planning permission, 10% more than the same period last year.
Glenigan report that the health and medical sectors rose 35% and projects are moving to a start, such as a £25 million healthcare facility at Royal College Street in Camden.
The biggest rise in approved work was in major infrastructure schemes, such as the £1.2 billion heat and power scheme at Enfield, North London.
Larger schemes are providing a lifeline to London’s construction industry. Contracts have been awarded on 31 projects valued at over £100 million in the last year.
Spotlight: Hotel and Leisure Projects
In the monthly Snap Analysis, Barbour ABI reported how there was a 240% increase in contract awards for the hotel, leisure and sport sector in July, particularly in the North East with projects such as Newcastle Leisure Centre.
London’s construction pipeline shows that in Q2, the biggest increase in projects getting the green light at the planning stage was in the hotel and leisure sector.
However, the overall outlook for the sector is weak. The sector experienced its weakest quarter for new project applications since 2013, according to Barbour ABI analysts.