Glenigan, one of the construction industry’s leading insight and intelligence experts, has released the January 2023 edition of its Construction Review.
The Review focuses on the three months to the end of December 2022, covering all major (>£100m) and underlying (<£100m) projects, with all underlying figures seasonally adjusted.
It’s a report which provides a detailed and comprehensive analysis of year-on-year construction data, giving built environment professionals a unique insight into sector performance over the last 12 months.
The central finding of the January Review is that starts continued to decline during Q.4 2022 to stand at levels last seen during the peak of the first COVID-19 lockdown.
This disappointing figure is likely the result of a set of extraordinary socioeconomic circumstances that have hampered the sector over the last 12 months. This ranges from the supply chain pressures caused by international conflict to risky economic decisions made by an unstable Government.
The sharp fall of project-starts by almost half (-48%) compared to the preceding three months’ performance highlights the immense pressure currently placed on UK construction. Furthermore, figures stood a fifth lower than the same period in 2021.
This overall drop in activity was also reflected in main contract awards, which dropped 18% against the previous quarter, and 23% against 2021 levels.
However, some glimmers of hope were to be found in a modest increase in detailed planning approvals, which rose 2% against the preceding three months, to finish 5% higher than the same time last year. This indicates that, whilst the industry is set to experience a leaner six months in Q.1 and Q.2, potentially followed by a gradual recovery in the second half of 2023.
Back to the Future
Activity plummeting to peak Pandemic levels will set alarm bells ringing across the industry. No doubt, this will prompt a period of caution as contractors and developers delay putting shovels in the ground until they have greater economic certainty.
Major project starts, which have previously accounted for an uptick in sector activity, fell dramatically, dropping 80% on the previous quarter and 55% compared to 2021. Underlying starts had a less pronounced decline, dipping 6% during Q.4 and only 7% on the previous year.
Digging deeper, underlying contract awards experienced a significant slump, standing 26% lower than the previous quarter and year, respectively. This was echoed, to a lesser extent, in major contract awards which also declined 19% in Q.4 and 14% compared to 2021 levels.
Planning approvals provided a rare bright spot in the prevailing gloom. Whilst major planning approvals fell 13% against the preceding quarter, the value increased by almost a third (+32%) on last year. Despite this uptick, the slight increase was tempered by underlying performance, with planning approvals dipping 30% during Q.4, finishing 4% lower than the same period in 2021.
Glenigan’s Economic Director, Allan Wilen says, “Similar to the previous iterations of the Review, the sector is still getting to grips with a very hostile economic climate. Prices continue to rise and access to skilled labour is falling, combine this with dented consumer and investor confidence and you have an unpleasant cocktail of challenging circumstances. It’s set to be a tough six months, requiring contractors and developers to be particularly agile and flexible to capture share in distinctly bearish markets.”
He continues, “We must also not underestimate the impact of tightening regulation on activity. With Fire Safety Regulations coming into effect yesterday, and the ongoing introduction of the Future Homes Standard, many will be pausing activity whilst they work out a way to balance margin and compliance.”
The sector-specific and regional index, which measures underlying project performance, saw starts softening across the board. However, some verticals, particularly in the commercial realm, picked up, complemented by some positive activity increases in a handful of UK regions.
Sector Analysis – Residential
Residential starts fell 5% during Q.4 2022, to stand 15% lower than a year ago. Whilst private housing slightly faltered (-1%) in Q.4, performance weakened by 12% on 2021 levels.
Unfortunately, social housing was, once again, the major contributor to residential-starts decline, falling 15% against the preceding quarter and 28% on the previous year.
Sector Analysis – Non-Residential
Non-residential performance was mixed during Q.4 2022. Offices were the stand-out vertical with starts rising 17% against the previous quarter to stand a third higher than a year ago.
Retail was also in clover, experiencing growth on the preceding quarter (+5%) and year (+4%). Hotel and leisure and healthcare were also up in Q.4, 2% and 13% respectively, but were down on 2021 levels.
In contrast, industrial projects suffered, falling 35% against the previous three months to finish the year 22% down on 2021 figures. Community and amenity fared even worse with starts falling 40% during Q.4 and 41% against last year’s results. Education remained largely unchanged, only dipping 1% against 2021 and down 2% on the preceding three months.
Civil starts slipped back 7% in Q.4 and 5% on 2021 levels. This overall decline was largely due to a drop in utilities activity, with starts tumbling 41% against the preceding quarter to stand 31% down on last year. On the other hand, infrastructure performed well, rising by a fifth against the preceding quarter and 12% up on the previous year.
Growth was inconsistent regionally. The North East was the strongest performing part of the UK, with project-starts increasing 29% during Q.4, rising almost three quarters (+72%) on a year ago.
The South East also had a good fourth quarter, with starts rising 29%, representing a 20% increase on 2021. Whilst starts in London (+4%) and the South West (+13%) also advanced on the preceding quarter, remained 19% and 5% lower than last year.
Some regions performed particularly poorly, including Scotland, where the value of project starts fell 43% against the preceding quarter to stand 39% down on 2021 figures.
The East Midlands, West Midlands, and the North West also suffered heavy falls in project starts against the previous quarter and year.
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