Industry Insights July

Construction Industry Insights July 2022


Contractions across almost all sectors and regions mean the construction industry is in a “period of decline”, the latest performance figures show.


Even pockets of reasonable activity – across the North West and Northern Ireland, and within the Infrastructure sector – do little to detract from overall weak output.


Ongoing economic challenges, ranging from material availability to labour costs, have slowed the industry through 2022. The latest construction industry insights show that this poor performance is made starker when compared to the post-pandemic boom in activity seen last year.


However, in its recent construction industry forecast, Glenigan has said there will be a return to strong growth. By its metrics – analysing construction project starts – there could be growth of up to 8% through 2023, supported by public sector spending.


Commentators caution that “wider economic concerns remain” though. While project starts have “stabilized” and material availability is “expected to ease”, the “sharp rise in energy costs” will mean ongoing challenges.


In our monthly Industry Insights we look at the most up-to-date findings from Barbour ABI and Glenigan:


Glenigan’s review


Analysts at Glenigan have noted a slowing across the construction industry, as project starts have returned to a period of decline.


In Glenigan’s Index of construction starts, looking at work to the end of June, underlying work starting on-site in Q2 fell back by all measures – by 5% compared to Q1, and by 27% compared to Q2 in 2021.


Some pockets of positive activity – Residential project starts were up by 17% compared to Q1 – did little to lift dips overall. All main sectors – Residential, Non-Residential and Infrastructure – delivered significantly lower activity than the same period in 2021, down by 21%, 29% and 47%, respectively.


Glenigan’s analysts said this was down to price inflation of construction materials; currently trending at 25% higher year-on-year.


Looking at performance by each region, the Index found more mixed performance. Northern regions fared best, with the North West’s growth up by 2% both compared to the preceding quarter and last year, and Northern Ireland up by 44% compared to Q2 2021.


However, elsewhere there were some sharps drops, with London and Yorkshire and the Humber experiencing drops in project starts of up to 45%.


Barbour ABI’s analysis


Some pockets of improved activity weren’t enough to prevent overall poor performance across the construction industry in May/June. Limited areas of higher output simply “masked”, rather than buoyed, activity overall, according to the latest Snap Analysis from Barbour ABI.


Once again, the Infrastructure sector shored up activity, as contract awards rose by 15% to £6.4bn last month. The sector delivered £2.3bn in contract awards, significantly boosted by the £1bn+ Stonehenge tunnel project. This took some of the sting out of an overall 22% fall in contract awards in Q2, taking totals just above long-term averages.


Across the Commercial, Residential and Hotel & Leisure sectors contract awards fell by 57%, 27% and 20%, respectively, in Q2. And though a healthy pipeline of work is on the horizon, it is not yet enough to match Q1’s record levels.


Planning applications and approvals also performed poorly in June


Overall, planning applications fell back to the same levels seen at the beginning of the year. Residential saw its lowest monthly value for planning applications since June 2020, at £3.5bn.


But in the Infrastructure, Healthcare and Industrial sectors there were promising signs, as May’s levels lifted overall Q1 averages. Two renewable energy projects in Scotland supported Infrastructure to submit £2.1bn of projects, taking Q1 averages to £2.5bn per month for the sector.


Just £5.4bn of projects were given the go-ahead in June, which is 26% less than May. This is the lowest value of planning approvals since February 2020. Good output from manufacturers is the only activity bucking this trend, supporting the Industrial sector to see £1.1bn of projects approved in June.


Sector spotlight: Commercial & Retail

In its monthly Snap Analysis, Barbour ABI reported how the Commercial sector had seen a 37% monthly increase in contract awards from May to June. There was an overall 20% increase on last year’s figures.


Similarly, Retail was the only non-residential sector to experience growth against the last quarter, according to Glenigan’s latest Index on construction starts. Based on figures up to the end of June, project starts for Retail were up by 6% in Q2. However, they remain 28% lower than the same period last year.


As an indicator of the sector’s ongoing prospects, planning applications were healthy for the Commercial sector in May, Barbour ABI reported. Projects totalling £800m were put forward, up by 17% compared to April and also improved on monthly averages from 2021. However, while planning approvals for Commercial projects stayed close to 2022 monthly averages, at £400m, they remain less than half of 2021 averages of £1bn per month.


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