The August Glenigan index highlights a downward trend across most sector verticals. Similar to the July Glenigan index, the construction industry recovery continues to be held back by several factors.
This includes the Russia-Ukraine war and global materials shortages, which are contributing towards rising construction costs. The weaker economic outlook has continued to negatively affect investor confidence, which has also supressed project-starts.
Project-starts worsened as construction costs rise
The average was £6.4bn, an 18% decline against preceding three months, and a 31% drop compared to the same period in 2021.
While major project starts increased 6%, the value was only 50% of what we were seeing in the same period in 2021. It was also the 4th consecutive month that underlying project-starts declined. Education sector project-starts performed relatively well compared to the previous months, but still 27% lower than a year ago.
Experts at Glenigan’s claim that project-starts have been hampered by rising costs and approximately 26% year-on-year material cost inflation cost.
More demanding and potentially costly standards
New building regulation changes to Part L came into effect on 15th June 2022. This mean that new homes have been given higher performance targets. CO2 emissions must produce 31% less than what was previously acceptable in the Part L Regulations. Non-residential builds need to reduce Co2 emissions by 27%, creating a new emphasis on low carbon heating systems.
The new standard could also bolster demand for newly built commercial and office space. The rise in fuel costs has made energy efficiency more important. It has been reflected in the increasing number of new projects built using the sustainable BREEAM route and will be reinforced by the new Standard.
“This marks a major change as it means businesses are looking at a broader environmental platform. By moving energy efficiency up the agenda, it will help to reduce their footprint and will have a direct benefit on costs and on the bottom line.” Allan Wilen, economics director at Glenigan.
Wilen adds, “construction materials inflation continues to be a stumbling block for the industry. However, the decline in starts can also be attributed to an earlier rush of activity, as developers brought forward projects due to start in July ahead of new Building Regulations coming into effect.’
Development pipeline
Glenigan reported that the development pipeline, which is usually an area of growth, has declined. Detailed planning approvals averaged £6.8 billion per month, over the last 3 months to July. That’s a 27% decrease on the preceding 3 months (Feb to April) and an 18% fall compared to the same period from 2021.
Health and industrial sectors performed better than other sectors
The healthcare and the industrial sector continued to perform much better than other sectors. The industrial sector had a 20% increase compared to the previous 3 months, and 25% better than the same period in 2021.
A new hospital in Jersey and Waltham Cross, meant that health sector approvals climbed by a third, against the preceding 3 months. That’s 30% higher than a year ago. There was a 39% increase in main contract awards in the health sector, 6% higher than the same period in 2021. The sector also enjoyed a 4% value increase on a year ago, according to Glenigan.
Glenigan UK Construction Industry Forecast 2022-24 predicts a 1% increase in the value of new project starts in the sector next year with activity being maintained in 2024.
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