The industrial sector took a hammering last year but has been one of the first areas to benefit from an upturn in activity and that is expected to continue.
In the wake of the Brexit vote, 2016, underlying project starts in the industrial sector crashed 26% amidst general uncertainty in the overall economy but confidence has swiftly returned.
Glenigan economics director Allan Wilen comments: “We expect the industrial construction sector to benefit from renewed investment in warehousing and logistics space. The demand for such facilities is being driven by long-term structural change in the retail sector.“
This rise in online sales drove earlier demand in 2014 and 2015 and, despite last year’s dip, that appetite remains with Amazon set to build a 2.2 million square foot ‘mega-shed’ in Bristol. This summer, Savills suggested that the ‘positive sentiment aimed at the UK logistics sector has shown little sign of abating’ with investment volumes of £2.6 billion nearly £1 billion higher than for the same period in 2016 and 150% higher than the long-term average.
Much of this investment came in the Midlands and has helped specialist contractors working in the industrial sector working in this region, such as Winvic.
However, some indications of uncertainty have emerged.
In its Q1 trade survey, the Construction Products Association highlighted weak activity in the industrial and commercial sectors as major factors in dragging down overall results. This was echoed in the CIPS/Markit update for July 2017.
At a wider level, overall retail sales suffered their biggest drop for seven years in the first quarter of 2017 according to the ONS but this knock-on effect for the industrial sector could be positive. “The drop in the first quarter of this year may actually accentuate the demand for warehouse accommodation as consumers’ increasing shop on-line or at smaller stores more reliant on warehouse hubs in an effort to seek out better value,” added Mr Wilen.
The continued weakness of the pound is also benefitting.
A survey in September from manufacturing organisation EEF of 416 companies by the EEF found an improving Eurozone economy was leading to more export orders in the three months to September 2017. EEF chief economist Lee Hopley said: “Exporting companies are capitalising on growth in the world economy – Europe in particular. That’s encouraging buyers of manufactured goods everywhere, and UK is helping those supply chains, helped by the weak pound.”
Increased exports are expected to lead to greater investment and Glenigan’s research shows that the planning pipeline remains strong.
The underlying value of industrial project approvals rose 11% in the 12 months to August 2017 against the same period a year earlier and Glenigan expects starts to rebound strongly this year with a rise of 18% forecast.
Mr Wilen concludes: “After the initial disruption following the vote there are now signs that investor confidence has improved. A recent rise in project starts since the start of the year suggests that investors are now pressing on with some the delayed projects and we forecasting a progressive recovery in sector starts over the next two years.”