Government projects are cushioning the decline in commercial construction starts, says Glenigan economics director Allan Wilèn
What is the current state of the construction market?
Public sector and utilities projects are helping steady the flow of construction schemes starting on site. The July Glenigan Index recorded a 19% year-on-year decline in the value of project starts as increases in educational, social housing and utilities projects partially off set declines in private sector work. This compares with declines of up to a third earlier in 2009. Glenigan anticipates a further stabilsiation in project starts during the remainder of this year, prior to an improved flow of new projects during 2010.
What is the regional picture like?
Near term the fall in private sector work continues to depress project starts across the UK. Only Scotland, Northern Ireland and Yorkshire & the Humber enjoyed a rise in starts during the three months to July, and these oases were thanks to increases in public sector and civil engineering work. The sharpest falls have been in the West Midlands and the North East and across southern England. There have been recent signs of improvement in the housing market, but developers are focused on completing and securing sales on existing projects, rather than opening new sites. Social housing has picked up, indicating that promised government funding is now feeding through.
What is the picture like for civil engineers?
Major schemes such as the £6.3bn M25 widening scheme are now underway, but project starts worth less that £100M have fallen in recent months due to delays to planned energy schemes. In contrast to the strong growth seen during the first quarter, the Civil Engineering Index in July was 15% down on a year ago.
When is it going to improve?
The fall in new project starts is forecast to moderate further over the coming months. But the flow of private sector projects will remain weak. The recent pick-up in public sector starts is set to lose momentum during the second half of 2009, while pressure on government finances will restrict the flow of public sector schemes over the medium term. As a result, the value of underlying project starts will be weak for some time.
When will housebuilding pick up?
Although recent months have seen a pick-up in mortgage approvals, recession, weak household earnings and limited mortgage availability are expected to restrict any recovery in new house sales or project starts near term.
And what of non-residential construction?
Prospects for non-residential construction have deteriorated over the last month. High vacancy rates and falling rents will continue to depress the office, industrial and retail sectors. Disappointingly, after the encouraging pick-up in project starts, the flow of education and health projects schemes is forecast to falter over the coming months. In contrast a renewed strengthening in civil engineering project starts is expected during the remainder of 2009 as the sector benefits from new renewable energy projects and spending on rail and road infrastructure.