Construction Industry Trends October
The UK construction market has been undergoing a period of substantial change with multiple factors having large-scale effects. In order to help make sense of this churn, we felt it best to publish this report on the trends occurring within the industry to help you make better employment decisions. In this article, we’ll cover what’s happening in the UK construction industry. We frequently cover the UK construction industry, so if you enjoy this type of content from us, feel free to browse the remainder of our blog, here.
Construction Industry Overview
The UK construction industry has seen several noteworthy trends in recent months. Firstly, construction starts and main contract awards have been underperforming, indicating a challenging period. On the bright side, detailed planning approvals have shown a robust performance compared to the previous year. This means that developers are taking fewer risks, but feel confident investing in large-scale projects where their return on investment is more likely.
In terms of work commencing on-site, there has been a noticeable decrease in activity, with both overall work and major projects experiencing declines. Underlying work, categorized as less than £100 million, has also seen a fall. This is due in part to higher interest rates, which have made first-time buyers struggle to get mortgages, or are willing to wait until the market settles.
Main contract awards have significantly declined in recent months, along with major project contract awards, signalling challenges in securing contracts. However, detailed planning approvals have seen a decrease compared to the preceding three months but remain higher than the previous year, offering a mixed picture.
The broader construction activity has shown modest growth in output, particularly in repair and maintenance work. Public housing repair and maintenance, in particular, has seen a strong performance. However, private housing repair and maintenance declined during the same period.
New construction work output showed a slight decline but remained slightly higher than a year ago. The public non-residential sector and infrastructure work experienced growth, whereas private new housing and some commercial sectors faced declines. The industry overall is unsure of which sectors will represent the surest bet for profitability, which is what drives our mixed picture.
Commercial Sector
A surge in approved plans for new office construction projects is bolstering the commercial sector’s pipeline. While the short-term outlook may seem bleak due to a decline in new commercial orders, the commercial sector is outperforming residential and civil engineering. Glenigan’s research reveals a significant number of office projects set to begin over the next year, with 20,713 office schemes planned to start between October 2023 and October 2024.
This anticipated workload has been enhanced by a 21% increase in office projects obtaining planning permission in the three months to September 2023, totalling £2,409 million. Both major and smaller office projects are being created. London remains a key driver of office work, but other regions are also experiencing growth, attributed in part to companies and workers relocating outside of London due to the pandemic.
Office development in regions like Manchester, Plymouth, and Glasgow is on the horizon, with substantial schemes expected to commence in the next year. While the path to recovery in the office sector may have its challenges, a substantial program of approved and upcoming projects is creating opportunities in the UK construction industry.
Housebuilding
The housebuilding sector faced challenges in September, leading to the sharpest decline in the CIPS/S&P UK Construction Purchasing Manager’s Index since May 2020. However, Glenigan’s construction research indicates that there is a substantial amount of upcoming work scheduled for the coming year.
Although new house building experienced a slump, 41% of respondents foresee a turnaround in the year ahead, compared to 17% expecting a decline. Glenigan’s data reveals that 44,969 high-value private housing developments are set to begin in the 12 months from October 2023 to October 2024.
Nearly half of these scheduled projects involve various types of houses, with 24,904 housing projects slated to commence in the coming year. Some schemes are still in the planning stages, such as Gladman’s plans for 170 homes in Cheshire and Bellcross Homes’ proposal for 700 houses in Hitchin.
Of the nearly 45,000 residential projects set to begin, 22,363 are flat developments. In London, despite a recent downturn in the housing market, several housing schemes are proceeding, such as the Cricklewood project and the Canning Town estate regeneration.
The build-to-rent sector, especially prominent in London, has shown resilience. The analysis identifies 311 build-to-rent schemes expected to commence in the next 12 months. New developments include flats at the Yards in Stratford and the Leeds Urban Village, which will provide over 1,000 homes, including 478 build-to-rent units.
With numerous projects in the pipeline across the country, the residential sector appears poised for a quick rebound.
Civils Industry
In September 2023, civil engineering orders experienced a decline, as indicated by the CIPS/S&P UK Construction Purchasing Manager’s Index. However, the overall picture for the third quarter of the year was more positive, with Glenigan’s index showing an upturn, particularly driven by infrastructure projects.
The value of civil engineering work below £100 million that began in the third quarter of the year increased by 8% compared to Q2 2023. Although utility work declined by 32% in the same period, there was a remarkable 48% increase in infrastructure project starts, leading to an overall rise in civil engineering work. Glenigan’s construction market data reveals that 1,037 underlying infrastructure projects are set to commence in the 12 months from October 2023 to October 2024. This points to a healthy, if changing UK construction industry.
Major infrastructure schemes are in the pipeline, contributing to an improved workload, driven by the government’s new £36 billion Network North program. Projects like the A509 Isham Bypass in Northamptonshire, the Wigan East-West route, and the Kendal Northern Access Route in Cumbria are set to benefit from Network North funds.
Additionally, highway schemes in southern England are progressing, and the rail sector is also seeing developments such as the construction of a new station in West Yorkshire and digital signal technology programs. The utilities sector, while currently declining, is expected to rebound with upcoming procurement opportunities.
With work from various sources, there is optimism for a sustained increase in civil engineering projects in the near future.
Conclusion – State of the UK Construction Industry
These trends suggest a varied landscape within the construction industry, with challenges in construction starts and contract awards, but some growth in certain sectors like public housing repair and maintenance and infrastructure work. Overall, professionals in the industry should stay mindful of these fluctuations as trends can change. While the UK construction industry looks strong for the moment there are many factors that could change this trajectory.
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