SOCIAL MEDIA ZEITGEIST

Glenigan Analytix is a business intelligence platform that provides construction businesses with the insights they need to succeed. They derive data from planning applications, main contract awards and start-on-site to deliver intelligence which empowers users. Their Construction Industry Forecast discusses the long-view in the sector, analysing trends and discussing predictions over 2024 and into 2025.

Here, we take a look at the key takeaways of their newly published report,  Construction Industry Forecast 2023-25, sector by sector.

Private Housing

A sharp fall in housing market activity following a rapid rise in mortgage costs saw the private housing sector stall in 2023. Coupled with a loss of real income for many due to high inflation, uncertainty led to a 19% drop in residential property transactions in the first eight months of 2023. As interest rates are expected to remain high for some time, recovery for the sector is likely to be subdued, but is forecasted to maintain an upward trend throughout 2024 and into 2025. For high-rise projects, this will be set against a backdrop of the new Building Safety policy, which could delay starts on site.

Social Housing

2023 saw the viability of many social housing projects being reassessed following the rise in construction costs in recent years, with a knock-on affect from the downturn of the private sector impacting mixed-tenure developments. Despite an 18% reduction in detailed planning approvals for social housing projects during 2023, the pipeline of work ready for start on site remains significant, while greater cost certainty will likely improve conditions for development. Coupled with steady growth in the private housing sector, which will improve opportunities for mixed-tenure schemes, housing associations are likely to increase their output over the next two years.

Social Housing

Student housing projects suffered from a lack of confidence from investors due to interest rate increases following the pandemic and uncertainty in a post-Brexit Britain. Despite fears, overall student numbers, both from the UK and overseas, have increased. Tax and regulatory changes are likely to discourage smaller landlords, priming the market for purpose-built student accommodation. Together, these conditions are forecast to increase starts on site for such projects by 16% in 2024 and 10% in 2025.

Industrial

The pandemic saw a significant growth in industrial facilities due to the uptick in online retail. However, in 2023 this was tempered by high interest rates and subsequent lower spending. While shopping habits have seen a shift back to high-streets and retail parks in the years since the pandemic, online sales are still up 25% on 2019 levels, indicating a potential renewed demand for logistics spaces over retail, particularly with an excess of empty retail spaces still present on most high streets.

Office

Office refurbishment has yet to recover in the post-pandemic era, with rising vacancy rates nationwide. However, a renewed focus on premium office space which supports hybrid-working and increased environmental performance is likely to see this sector improve throughout 2024. The outlook is particularly positive in northern regions, with detailed planning approvals up 26% in the North West and 46% in Yorkshire and the Humber over the first nine months of 2023, when compared with the previous year.

Retail

The retail sector felt the pinch of high inflation on multiple fronts, as both investors and consumers reacted with caution and reduced spending. Coupled with structural changes to consumers’ shopping habits following the pandemic and the surplus of empty retail spaces, the recovery of the sector is forecasted to be slow. There has been an upside to tighter budgets for discount supermarkets such as Aldi and Lidl, both of whom plan to expand their estates with hundreds of new stores, bringing some reprieve to the retail construction sector.

Recovery for the hospitality sector has been slow following the pandemic and increases in energy and labour costs, resulting in a decline in project starts. As with the retail sector, this has been compounded by lower consumer spending in 2023. While recovery to pre-pandemic levels is still a way off, the pipeline of work is in increasing. Coupled with an expected rise in overseas visitor numbers in 2024, the sector is forecasted to see a gradual recovery over the coming years.

Education

The only sector to grow in 2023, the education sector has benefitted from increased government investment following underspend from the previous financial year being rolled forward. This helped to support a 24% rise in school building projects 2023, with further double-digit growth forecast for 2024. However, impacts from the general election remain to be seen, with disruption likely during a post-election review of priorities. Additional funding is likely to be announced to address issues with Reinforced Autoclaved Aerated Concrete, with 214 schools currently at risk.

While university projects are yet to recover following a four year decline to 2022, the overall number of students at UK universities is increasing, including a 24% increase from non-EU students. The increase in number of these higher fee paying students is likely underpin a steady increase in university projects over the next two years.

Healthcare

The outlook for the health sector is muted but remains positive, with a 3.8% per annum real-term growth rate in NHS capital funding set to support a rise in starts on site during 2024. Industrial disputes and a focus on cutting waiting lists following the pandemic have slowed growth in the sector. While NHS funding is likely to be front and centre during the election campaign, growth is forecast to be 2% in 2025 as post election spending reviews disrupt investment.

Republic of Ireland

The construction sector in the Republic of Ireland bounced back with vigour following the pandemic. High inflation and rising interest rates did little to dampen investment and 2023 saw continued growth. With industrial production and consumer spending well above pre-pandemic levels, the IMF predicts growth to be 3.3% in 2024.

Following an exceptional period of growth, the private residential sector is forecasted to slow during 2024, with a 35% drop in planning permissions during the first nine months of 2023.

The private non-residential sector sees the same structural changes in consumer shopping habits and hybrid working fuel investment in industrial facilities and lowering demand for office space as in the UK. While Ireland’s prominence in the global tech and pharmaceutical industries further strengthens the industrial sector.

Substantial government investment in education is set to lift the sector following a decline due to rising material costs in 2023. While similar rising costs disrupted the initiation of many healthcare projects, increased capital funding is forecast to support growth in the sector during 2024.

 

Summary (TL;DR)

Emerging opportunities will be in different sectors to those which performed best pre-pandemic, reflecting structural changes.

Election uncertainty is likely to cause disruption in the public sector.

Northern regions are set to outperform the south east as government funding prioritises its “levelling up” agenda; such policy is likely to remain strong even if the election sees a shift to a Labour majority.

After sharp falls in starts during 2023, construction faces a gradual improvement in market conditions over the next two years. Firms will need to be adept and responsive to exploit the new opportunities as they emerge.

Key Recommendations

As ever, diversification will be key to targeting new opportunities and shifting priorities both within and across sectors

While material and labour supplies have stabilised, growth in the coming years could see a return to shortages, particularly with the loss of skilled EU labour. Contractors may factor this in when bidding for work resulting in increased construction costs across different project scales.

Programmes could be affected by the Building Safety Act coming into force and poor economic growth, resulting in a delay to stage payments. An enlarged order pipeline will mitigate programme delays but must be set against resource management.

In today’s fast developing technological climate, investment in digital systems to ensure efficient and streamlined processes both pre-construction and on-site is key.

 

Read the full report here: www.glenigan.com

 

Summary Report by Marie Braithwaite, Business Development Strategist at Woodburn Park Communications.