Industry Insights June 2022

The construction industry is settling into a “subdued” period following 2021’s ‘post-Covid’ boom, experts suggest

June’s industry insights and the latest analysis from commentators at Barbour ABI and Glenigan show ongoing fluctuation in activity. The outlook for the construction industry remains the same as it has for much of 2022, showing altogether more settled activity as pockets of waning activity are balanced by uplifts elsewhere.

Sector spotlight: Healthcare construction projects

Recent industry insights show that the Healthcare sector’s fortunes are indicative of the wider construction industry’s condition. Healthy levels of contract awards and detailed planning approvals are marred by slips in project starts.

Reflecting the wider trend of fluctuating planning applications, Healthcare saw £700m of projects submitted in April, thanks a hospital redevelopment in West Sussex. This was a huge 733% leap from March’s planning applications, according to Barbour’s reporting.

Above average levels of contract awards in the Healthcare sector buoyed overall figures for May. Its £300m of projects meant the sector was up by 48% compared to both last month’s and last year’s figures, as reported by Barbour ABI.

The outlook for the healthcare construction projects looks strong. There will be a continuation of increased spend on public health projects in line with the Government’s pre-election pledge to build 40 new hospitals. 

Healthcare construction insights from Glenigan

In its Construction Review, Glenigan also noted strong main contract awards for the healthcare sector – largely thanks to underlying works along with a single £100m project. This made for a 79% increase compared to the previous three-month period and was also up 61% against 2021. However, Glenigan also found that underlying projects starting on-site slipped slightly and no major projects started on-site in the period.

Small lifts in the wider construction industry offer little relief when compared to 2021 figures

In its latest Construction Review, reflecting activity to the end of May, Glenigan suggests small lifts in activity offer little relief when compared to figures for 2021.

While detailed planning approvals, main contract awards and project starts all grew during the three months to the end of May, none came close to figures from the same period last year.

Within this, planning approvals had lifted by 13% to average £9.1bn per month, but still sitting 5% lower than last year. And underlying projects start rose by 9%, though still fell short of last year’s activity by 19%.

The only outlier here was for major project approvals, where a 5% fall for recent months still offered an overall 10% uplift compared to 2021.

However, output for the construction industry overall is good. During the three months to April this rose by a very modest 2.9%, and by 5.2% year-on-year, according to ONS data reported by Glenigan. New private industrial projects, private housing and public housing all helped this.

Construction industry insights indicate a “subdued” ‘post-Covid’

Findings from Barbour ABI, in its most recent Snap Analysis, demonstrate the risks commercially sensitive sector’s have to wider economic challenges.

Contract awards appear to have stabilised, following falls from recent highs. While £5.5bn for all sectors is a sharp drop against the monthly average of £7.6bn enjoyed in Q1 2022, it is stable compared to April’s £5.8bn, at least. 

Logistics developments continued to play an important part in this. These supported the Industrial sector to deliver £1.2bn of contract awards in May – taking it back to the levels seen at the end of 2021.

Other sectors suffering lower levels for contract awards in May included Commercial, down by 32% compared to Q1, and Education, where a second weak month meant figures are now half those reached in 2021.

Barbour ABI’s analysts said this second month of average activity suggests the construction industry is in a “subdued stage”, due to the UK’s economy and global geopolitical challenges.

Planning approvals and planning applications were also lower in May

A huge drop in overall planning approvals, down by 37% to £7.3bn, was largely down to Infrastructure’s exceptional performance in the previous month. The sector had seen a huge £5.6bn of planning approvals in April, making its 72% fall back in May significant but not surprising.

However, overall below average levels for planning approvals expose the reality for commercially sensitive sectors like Infrastructure, Residential and Commercial.

The only real anomaly was Industrial, which enjoyed £1.5bn of planning approvals, taking it back to the high levels seen at the end of 2021.

Planning application levels continue to fluctuate, with £9.2bn lodged in April, compared to £12.3bn in March and £7.9bn in February. This made for a good month though, sitting just above historical average levels.

Infrastructure maintained its strong activity for planning applications and Education recorded its first above average month of the year to date.

Industry insights indicate a skills shortage will have a ‘ripple effect’

Elsewhere, a recent report from the Construction Partnership says the construction industry is now likely to face a fresh set of challenges due to skills shortages. The impact this will have on “recruitment, retention and related wage inflation” could even overshadow the materials and supply chain challenges, such as steel price rises experienced since 2020, its research has found.

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