Commercial starts spring back, public sector lags behind

The construction industry is starting to move out of its recent stupor, according to figures released by industry analysts Glenigan. 

The September Glenigan Index shows that private sector construction starts have returned to growth, though the impact of election delays still hangs over the public sector starts. Overall the underlying value of construction starts was 8% lower during the three months to August than a year earlier, but this rate has improved from a 20% decline in July. Taking the month of August alone saw starts up strongly from a year ago.

The office, hotel and leisure and industrial sectors have all returned to growth during the last three months. The value of underlying office starts, which excludes those on schemes valued at over £100m, was 18% higher than a year earlier, while the hotel and leisure sector saw a rise of 8%. Retail starts remained 8% down on a year ago; however this an improvement on a 21% fall in the three months to July, with August alone seeing strong levels of new activity. Industrial starts were also up on a year earlier, rising 19%.

However stasis across the public sector is still weighing on construction starts, and non-residential starts as a whole were down 9% on a year earlier. The value of new education, health and other community and amenity schemes starting was well down on a year earlier during the three months to August. 

Commenting on this month’s figures, Allan Wilén, Glenigan’s Economics Director , said: “The uncertain and hard to call election continued to cast a shadow over the construction industry for much of the summer.”

Indeed a scarcity of public sector projects is continuing to weighing on new activity, leaving  non-residential starts 9% down on a year earlier during the three months to August.” 

Allan Wilén added: “However the latest Glenigan starts data shows the commercial and private housing sectors coming back to life, and we expect a similarly strong September to drag starts overall back into growth for the third quarter.”

“Private residential project starts also grew at a healthy pace, up 11% on a year earlier. Although this growth was also offset by public sector weakness as the downward trend in social housing starts has continued pulling Glenigan’s residential growth index down to -2%.”

Four English regions experienced growth in starts during the last three months. The East of England and East Midlands have been the brightest parts of the UK since the beginning of 2015, and growth in private housing activity has helped push starts upwards in both these regions. The East Midlands was also once again a particular beneficiary of industrial sector expansion. 

In contrast the West Midlands has been one of the worst performing parts of the UK over the last year, but the latest figures have brought rare growth, with starts up 7% compared to a year ago. The North East of England also saw starts rise against a year ago.

However with starts overall still contracting, every other part of the UK saw further declines. These were starkest in Scotland, Wales and Yorkshire and the Humber, each of which saw starts decline by 25% or more compared to a year ago.

Outlook

Though construction starts have remained weak into July, an expanding development pipeline means that we continue to see the overhang from election related delays, rather than a weakening in client demand, as the primary drag on new activity. During the second quarter of 2015 the underlying value of approvals rose by 11% compared to a year earlier.

Moreover confidence, which radiated out from London across the UK during the course of 2014, remains strong in the regions. London and the South East both saw approvals decline during the second quarter, but every other part of Great Britain saw the value of work approved increase during the same period. Northern Ireland also saw approvals down relative to a year earlier. 

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