Glenigan mid-year forecast July 2017

Political uncertainty and doubts over the Brexit negotiations will inevitably take their toll on the industry’s prospects for the coming two years. But whilst slower economic growth is likely to impact on new projects starts, particularly in the private sector, the good news is that overall activity across the industry is set to continue expanding. Glenigan’s latest mid-year forecast for 2017 suggests the total value of underlying new project starts is set to rise by 1 per cent in 2017 and a further 2 per cent in 2018. Whist the squeeze on household budgets is likely to mean a dip in new starts in private housing, retail and office work over the next 18 months, a series of bright spots – notably in civil engineering, logistics-led industrial work and hotels & leisure - will help to keep the industry busy. The public sector presents a mixed picture. Capital spending is on the rise following the referendum and further rises in public spending are likely in the wake of the Election result. But in the short term, any extra spending is likely to be focused more on areas of political tension such as the NHS frontline and social housing safety measures following Grenfell rather than longer term capital projects. That said, the value of new work project starts in the health sector is set to rise by 23% this year and although education starts are under pressure this year, they are set to rebound sharply in 2018. Meanwhile, the civils sector is likely to continue to benefit from continued strong spending by the utilities and Highways England and as HS2, Thames Tideway and Hinckley Point C take shape. After falling for the past two years, Glenigan now forecasts that the value of new civils project starts is likely to rise by 9% this year and a further 19% in 2018. One branch of the private housing sector which is gaining momentum is Build to Rent. Last year, project starts in the sector were worth £750 million, involving more than 5,500 units - treble the level of 2015 - and with further growth expected this year. Reits and other financial institutions are investing more in the sector, providing new opportunities for main contractors to manage projects. However, the squeeze on consumer spending and continued slowing in the housing market is likely to mean fewer site openings by housebuilders, particularly smaller operators, as sales of new homes slow. The latest RICS housing market survey pointed to declining enquiries, instructions and sales in May and suggested price growth had ‘lost momentum’, with a further cooling likely in the near term. Glenigan is forecasting a 1% dip in the value of private housing starts this year and a further 4% fall next year. Yet to date, the volume housebuilders remain positive. Earlier this month Persimmon said its sales in May and June were healthy and the market had taken the snap Election in its stride. Its first half completions were up 8% on the period last year at 7,794. Meanwhile, Glenigan forecasts show that the supply of sites available for development has improved significantly in the past three years, notably in London and the South, which should bode well for the industry in the medium/longer term.