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Regions: Where do you need to be by 2017?

Only five of the UK’s 11 regions are expected to be in growth come 2017, despite some strong performances during the last two years. So where are the brights spots and which areas should businesses be avoiding over the next 24 months?

East of England

The East of England is forecast to be the strongest-performing market by output growth of any region in the UK through to 2017.

Growth over the past two years has been slower than most regions, with an increase of 9 per cent recorded in 2013 followed by a rise of just 2 per cent in 2014.

But unlike many other areas of the UK, the East of England’s output is on course for a modest but steady increase in the medium term, with a 2 per cent rise expected for 2015.

“The infrastructure pipeline will be a strong contributor, with schemes such as the A14 upgrade”

This will be followed by growth of 4 per cent and 2 per cent in 2016 and 2017 respectively. By 2017, output is forecast to be 7 per cent above the level recorded in 2014.

The infrastructure pipeline will be a strong contributor to this growth, with schemes such as the upgrade of the A14 adding significant value.

Similarly, a strong industrial sector - especially in warehouses - will provide a boost to output during the next two years.

Private housebuilding meanwhile has been underpinned by Help to Buy, with 30 per cent of new-build sales supported by the scheme.

However, private housing output in the East of England fell 2 per cent in 2014; a similar pattern is expected in the short term, meaning the sector will not be as significant a contributor to output growth as in many other regions.

East Midlands

The East Midlands saw strong output growth of 14 per cent in 2014 - a significant turnaround following declines of 9 per cent in 2012 and 1 per cent in 2013.

Growth is set to be more modest in 2015, with a 5 per cent increase forecast for the year. However, in contrast to other areas, this growth is expected to be sustained up to 2017, with output forecast to rise by 1 per cent in both 2016 and 2017.

By the end of 2017, the value of new-work output is projected to stand at £370m, representing a 7 per cent increase on the level recorded in 2014.

“The industrial sector has been one of the strongest performers, driven by warehouses”

The industrial sector has been one of the strongest performers, driven by a lucrative warehouse market. Similarly, large-scale road projects will provide a boost to infrastructure output in the medium to long term.

As with other regions, private housing has been a crucial sector for the East Midlands in recent years. Private housing output increased strongly over the course of 2014, while new work also grew.

The Help to Buy scheme underpins about 30 per cent of private new-build housing in the region, but growing unaffordability is expected to increasingly dampen housebuilding output in the short term, contributing to a slowdown in growth.

London

London was once again among the fastest growing regions in the UK in 2014, posting a 24 per cent increase in output. This performance was underscored by private housing, which grew by 69 per cent, as well as commercial building, which saw growth of 25 per cent.

Overall output is forecast to increase 10 per cent in 2015. However, this will be followed by a 2 per cent decline in both 2016 and 2017.

Nevertheless, by the end of 2017 output is expected to stand at £1.1bn - still 6 per cent above the levels seen in 2014.

“There are concerns around oversupply in high-end housing and affordability at the lower end”

Private housing has been the strongest performer for the region over the past two years, with output in 2015 more than twice the level recorded in 2012.

Despite this, concerns around oversupply in high-end housing and a lack of affordability at the lower end of the market could well hit output in the short term.

The commercial and office market has also recorded solid activity, with steady growth expected in the short term.

Infrastructure output however has fallen steeply, down 13 per cent in 2013 and 24 per cent in 2014, as large projects such as Crossrail draw nearer to completion.

Modest growth in this sector is forecast in the short term, although it will remain well below the highs seen in 2011.

North-east

The North-east saw the highest growth rate of any region during 2014, with the value of new-work output increasing by 27 per cent in 2014, albeit from a low base.

All sectors recorded growth last year, with public housing and industrial output more than doubling over the course of 2014.

The pace of overall construction growth is forecast to ease off in the short term, with output contracting by 2 per cent in 2015 before recovering in the next two years to stand 17 per cent above 2013 levels by 2017.

“All sectors saw growth last year, with public housing and industrial more than doubling”

Private housing has performed strongly over the past two years, with growth of 10 per cent in 2014 followed by a further 13 per cent rise in 2015.

As with neighbouring Yorkshire & the Humber, Help to Buy has underpinned growth across the North-east, with the scheme accounting for 40 per cent of private housebuilding at the end of 2014.

The expected slowdown in Help to Buy will, of course, have a negative impact on housing output figures.

Strong commercial and warehouse markets are expected to mitigate this decline to a degree, as both sectors are forecast to remain solid over the short term.

North-west

The North-west saw output grow 14 per cent in 2014, following a rise of 15 per cent in 2013. However, as with Yorkshire and the North-east, the increase has primarily been driven by the housing sector.

Output is set to grow 7 per cent in 2015, before falling 2 per cent and 1 per cent in both 2016 and 2017.

“Despite this contraction, private housing will remain the major growth driver in the region”

During 2013 and 2014, private housing accounted for 62 per cent of all output growth, with Help to Buy making up 35 per cent of private housebuilding in the region. Accordingly, a predicted slowdown in the sector this year will dent total output in the short term.

Despite this contraction, private housing will remain the major driver of growth in the region, with output at the end of 2015 still expected to be more than double 2012 levels.

Commercial activity has also recorded strong growth, especially in Manchester, which is driving demand for office developments. The North-west will remain the third largest market outside of London through to 2017, with output forecast to hit £8.89bn.

Scotland

Scotland recorded an impressive performance for 2014 as a whole, with output increasing by 22 per cent following on from a 17 per cent rise in 2013.

Growth of 12 per cent is expected for 2015 - the second strongest performance of any UK region after the West Midlands.

However, the region is set for a slowdown in both 2016 and 2017, with output forecast to decline by 4 per cent and 3 per cent respectively. Even with these successive contractions, output in 2017 is still forecast to be some 47 per cent up on 2012.

“The offices market has helped to drive total output and is forecast to hold up in the short term”

Similar to much of the UK, housebuilding has been a standout sector in Scotland. Housing starts peaked at 12,000 in 2014 but are expected to ease off through to 2017, though the sector will remain a significant contributor to overall Scottish construction activity.

Sharp growth in recent years has seen Scotland’s infrastructure market become the second largest outside of London. However, while the final figures for 2015 are expected to show further growth in the sector, output is projected to tail off in 2016 and 2017.

The offices market has also helped to drive total output north of the border and this strong level of performance is forecast to hold up over the short term.

South-east

The South-east is among a handful of UK regions forecast for modest but steady growth through to 2017.

Output in the region was up 4 per cent in 2014, thought the moderate rates of growth posted in recent years have left the South-east only marginally ahead of where it was in 2009. Another 4 per cent increase is expected for 2015, before growth falls back to 2 per cent in both 2016 and 2017.

Commercial building has been one of the most robust sectors for the region, recording growth of 10 per cent in 2014, with a further 4 per cent expected in 2015, largely driven by the strong performance of the offices sector.

“Commercial building has been one of the most robust sectors for the region”

Infrastructure and industrial are also forecast to expand through to 2017, albeit at a slower rate.

In contrast to other regions, growth in private housing output has been weak.

As is the case with the majority of regions, housing activity has been underpinned by Help to Buy, which accounts for 30 per cent of new-build properties in the region.

Despite this, the sector has still failed to drive growth to the same degree as elsewhere.

While private housing output grew by a combined 45 per cent during 2013 and 2014 across the UK as a whole, the sector’s output in the South-east finished 2014 below 2012 levels.

South-west

The South-west recorded output growth of 7 per cent in both 2013 and 2014, with its value rising by £815m over the two years.

Private housing once again drove a significant proportion of this performance, growing by £735m during the period.

Overall output will remain flat through to 2017, with a 0.3 per cent fall expected in 2015.

This is set to be followed by a dip of 0.2 per cent in 2016, before a subsequent upturn of 0.8 per cent in 2017, making the South-west one of only five regions expected to record growth in the final year of the forecast period.

“Private housing is expected to slow beyond 2015 due to diminishing affordability”

The private housing sector is expected to slow beyond 2015 in line with diminishing affordability.

A forecast peak of 16,500 housing starts will be reached by the end of the year, with declines in activity expected beyond that point.

Infrastructure output, meanwhile, is expected to increase in the medium term, but delays to the Hinkley Point C nuclear project mean it has not been factored in
to these forecasts.

Output has declined for the commercial sector, which,as of 2014, was running below the level seen in 2010.

However, there is increased optimism for the office market and speculative developments will contribute to a rise in the sector’s output over 2016 and 2017.

Wales

Wales was the only region of the UK where output contracted in 2014, with a fall of 10 per cent. The country has struggled more than any other area of the UK to recover from the consequences of the recession.

Accordingly, Wales is set to be one of only two regions, along with the North-east, to experience a dip in output in 2015, with forecasts indicating a 1 per cent contraction.

However, the outlook beyond this year is significantly brighter. Growth is expected to hit 4 per cent in 2016 followed by 3 per cent in 2017 - the highest of any part of the UK and one of only five regions expected to grow that year. By the end of 2017, output is forecast to be marginally ahead of 2014 levels.

“Wales is set to be one of only two regions to experience a dip in output in 2015”

The relative weakness of the Welsh market relates in part to sluggish growth in the private housing market - a sector that has underpinned the improvements seen in the majority of other regions.

Falling affordability and the knock-on effects of lending restrictions will stymie any significant growth in the short term.

In the commercial market, stronger speculative office development should help boost output in 2016 and 2017.

Meanwhile, a growing pipeline of highways work is expected to encourage modest infrastructure growth during the period.

West Midlands

Growth slipped to just 1 per cent in the West Midlands in 2014, but a strong pipeline of orders will lead to a rise in output during 2015 and beyond.

The region is forecast to record growth of 13 per cent for 2015 as a whole - the highest rate of any
area of the UK.

This impressive performance is being driven by strong showings in the private housing, commercial and infrastructure sectors.

“Help to Buy supports nearly 40 per cent of private housebuilding in the region”

Once again, much of the growth in output has been underpinned by the private housing sector, which has accounted for nearly 80 per cent of all growth in the West Midlands over the past two years.

Help to Buy supports nearly 40 per cent of private housebuilding in the region, but reduced affordability will contribute to a slowdown in the sector and a contraction in growth as a result.

Other markets will help offset some of this decline, with industrial activity in the West Midlands expected to perform strongly over the medium term. This will be driven by large-scale investment from the automotive industry - most notably Jaguar Land Rover.

Commercial building work is also expected to increase significantly in the next 24 months, underpinned by rising demand for office development in Birmingham.

Yorkshire & the Humber

In recent years Yorkshire & the Humber’s construction output has been driven by strong increases in housing and commercial workloads.

The final figures for this year, however, are expected to show a slowdown in the pace of overall growth across the region.

Growth in total output during 2015 is forecast to hit 2 per cent, down sharply on the 13 per cent seen in 2014.

“The final figures for this year are expected to show a slowing in the pace of overall growth”

By the end of 2017, the value of output is expected to stand at £6.13bn - 5 per cent lower than the level seen in 2014. Private housing is predicted to record growth of 13 per cent for 2015 as a whole, followed by a slight decline during the subsequent two years.

Help to Buy has underpinned a doubling in housing output across Yorkshire and the Humber since 2012; the scheme now accounts for nearly 30 per cent of private housebuilding in the region.

The widely predicted slowdown in Help to Buy will inevitably have a significant impact on overall figures for Yorkshire & the Humber, where private housing output has accounted for 65 per cent of the region’s growth since 2012.

In contrast, office and retail development is strong and is expected to remain so in the medium term, driven by schemes including Hammerson’s Victoria Gate development in Leeds.

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