Construction growth hit by summer slowdown

• Glenigan Index for September just 2% higher than a year ago due to weak performing commercial office and public sectors.
• Private housing starts up 11% year on year, marking 17 months of consecutive growth.
• Value of civil engineering projects awarded so far in 2014 up 28%.
• Regional picture sees a decline in Scottish project starts - indicating a ‘wait and see’ approach ahead of independence referendum.

New figures from construction market analysts Glenigan indicate industry growth stalled over the summer months – but this pause is expected to be short lived.

The Glenigan Index, which covers the value of projects starting on site during the three months to August, is 2% higher than a year ago - a 10% drop on the previous month - hampered by declines in public sector work and a dip in the commercial office sector.

Following a flurry of office project starts in the spring, the Glenigan non-residential index has fallen to 2%, compounded by a strong sector performance during the same period of 2013. A drop in education projects has also contributed to the pause in non-residential growth.

However, renewed growth in office projects is anticipated for later in the year and during 2015.

Private sector construction activity has also continued to expand, with sustained growth in private housing starts and a sharp rise in industrial projects.

The value of private housing starts was 11% up against the same period of 2013, with the sector marking 17 months of consecutive growth.

Strong double digit growth was also seen in the retail and hotel & leisure sectors.

Commenting on this month’s Index, Allan Wilén, Economics Director at Glenigan, said: “The current slowdown in project starts over the summer is expected to prove short lived, with increased private sector work expected to lift starts after the summer lull. 

“The private housing sector is expected to remain strong. Media attention has focused on a potential cooling in the London property market after the sharp price rises seen over the last year; however demand for homes is strengthening elsewhere.

“Help to Buy has improved the demand for new homes, with 82% of supported loans going to first time buyers and 94% of sales being of properties outside the capital.”

He added: “Non-residential building activity is also set to strengthen during the remainder of this year and into 2015, driven by a marked pick-up in commercial and industrial contract awards.”

Social housing work has fallen back over the last three months, with the underlying value of starts down 13% year on year. The decline follows a sharp drop in social housing projects securing detailed planning approval and comes amid reports that the current government funding regime is failing to attract sufficient new development proposals from housing associations.

Underlying civil engineering work was little changed on a year ago, with both infrastructure and utilities project starts rising by around 1%. However overall sector performance remains strong, with the value of underlying civil engineering projects (which excludes schemes of £100 million or more) awarded during the first eight months of 2014 up 28% on a year ago.

Among the sector’s growing pipeline of projects is the £7 billion decommissioning programme for the UK’s aging magnox nuclear plants and the £745 million Aberdeen bypass scheme.

The subdued national picture for project starts belies some marked regional growth – particularly in Yorkshire and the Humber which saw a sharp 80% jump in project starts on a year ago. 

The North East of England, Northern Ireland and Wales all also saw strong double digit growth.

In contrast, project starts fell in the East of England, London and Scotland. The decline north of the border may reflect a ‘wait and see’ approach from private sector investors ahead of the Scottish independence referendum later this month. The drop in the capital reflects the pause in new office project work.

The monthly Glenigan Index is based on extensive research of every construction project starting in the UK over the previous three-month period, providing an indicator of developing activity and future output in the industry.

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