Glenigan Index: Summer lull in project starts

Review

The Glenigan Index for the three months to August was 2% down on a year ago. The cut backs in Government funded work are continuing to hold back project starts, while the initiation of civil engineering projects in and around the Capital appears to have been scheduled or deferred until after the Games. In contrast the value of private housing, industrial and commercial projects starting on site remains firm and is forecast to improve further over the remainder of the year and during 2013. 

Nationally, the provisional figures show that the underlying value of private housing starts has increased by 24% during the three months to August against a year ago, as housebuilders open sites in preparation for the important autumn selling season. In contrast the index of social housing starts in August was 36% down on a year ago as housing associations have reshaped their development programmes in response to reduced government funding. The fall in social housing starts overshadowed higher private sector activity, leaving residential starts 4% down on a year ago. 

This year the overall flow of non-residential starts has been balanced between a strengthen in private industrial and commercial projects and a weakening in public sector work. This trend is continuing with the Non-Residential Index for August 4% up on a year ago, reversing the 3% decline in July. Office and industrial building in particular remain strong: Office starts were 61% higher than a year ago and while industrial starts rose by only 5% this was due to a strong performance a year ago. In addition retail project starts were also up on a year ago, however the flow of project starts is expected to slow over the coming months following the reappraisal by Tesco and Sainsbury of their investment programmes The underlying value of education and community & amenity dropped as public sector cuts continue to bite. 

The Civil Engineering Index for August was 18% down on a year ago, dragged lower by a renewed weakening in utilities project starts and a decline in the value of underlying infrastructure projects starts. The drop in civil engineering projects in London was particularly noticeable and may reverse post-Games.  

Forecast

Looking ahead Wilen commented “The cuts in government spending will continue to restrict the number of education and social housing projects coming through the development pipeline. Though the level of health projects has remained resilient so far, we expect a shrinking flow of work over the next eighteen months. Less money for new builds could see an increase in refurbishment work next year, with schemes such as the Priority Schools programme promising to provide funds for such work.”

Wilen continued “There will continue to be a high level of infrastructure investment, particularly concentrated in the south of England. Crossrail will continue to provide rail related work, while there may begin to be a lift in spending on the road network. More growth is predicted for the commercial sectors, though the strength of any sustained recovery depends on economic prospects, both in the UK and abroad. The increase in private housing building seen during the year to date will slow over the remainder of the year. Whilst we expect 2012 to be a growth year, poor household earnings growth and weak house prices will dampen the pace of recovery in the value of starts.”

Rolling three month index of project starts. Excludes projects worth £100m or more. For index values, 2006 = 100.

Source: Glenigan

P-provisional; R-revised.