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Commercial sector boost helps fuel upgrade to output forecasts

The commercial sector has joined private housing and infrastructure as those set to fuel industry growth over the next five years, according to the latest outlook from the Construction Products Association.

The commercial sector, the industry’s largest in output terms, is forecast to grow by 2.4 per cent in 2014, before an acceleration to 6 per cent in 2015. The following two years will see growth of 4.5 per cent and 4.7 per cent.

Total construction output is expected to return to growth a year earlier than previously thought, with forecasts for the five years ahead increasingly positive, according to the association’s latest forecast update.

Output for 2013 is now expected to have grown by 1 per cent, compared with a forecast dip of 0.5 per cent in the association’s previous update published in October.

This year will see a growth of 3.4 per cent, up from the 2.7 per cent forecast three months ago, while 2015 is forecast to grow by 5.2 per cent before a slight slowing of 4.4 per cent and 3.6 per cent growth for the following two years respectively.

The welcome news for commercial comes after a disastrous 2012 for the sector, which saw output drop by 11.5 per cent over the year.

Offices and retail are expected to lead the charge, with both sub-sectors forecast for 10 per cent growth in 2015, following growth of 7 per cent and 2 per cent this year respectively.

“Offices is significantly up despite the fact that business investment is still 26 per cent lower than five years ago, but the improvement we saw in Q3 [2013] is expected to continue,” said Construction Products Association economics director Noble Francis.

Dr Francis added: “Demand has certainly picked up in London but also elsewhere in major cities around the country, which is feeding through into rents.

“There is a period of time when this will feed through into orders for new space, but it will act as a signal for orders, which will start to get off the ground.”

Retail’s positive outlook is largely on the back of the expectation of a number of major developments coming through, following an improvement in consumer confidence and the expectation of growth across the sector with an increased focus on refurbishment work.

“Despite the fact that real wages continue to fall, retail spending will rise,” Dr Francis said.

“What is sustaining people is that because interest payments are low, so are mortgage payments. A few major developments will be enough to bring [retail] back.”

But he cautioned that even by 2017, the volume of output in the sector will still be 17 per cent below that in 2007.

The forecasts expect growth in private housing starts to slow significantly in 2016 and 2017, to 2 per cent each year after double-digit growth in 2013, 2014 and 2015.

Dr Francis said that the uncertainty about what will happen after the scheduled end of Help to Buy is feeding into the more cautious figures later in the forecast period.

“At the last forecasts we had to make assumptions post-2015, which were that the mortgage market would not be self-sustained and that Help To Buy or a similar policy would continue,” he said. “Now indicators [for continued funding] are more pessimistic.”

As with the autumn forecasts, expectations for infrastructure, which is set to grow by 35 per cent between 2014 and 2017 through energy work and more certainty about roads, do not take into account High Speed 2.

“Rail growth rates will fade,” Dr Francis said. “Theoretically, Network Rail has more to spend but the public subsidy is falling, so where will the money come from? In addition, by 2017 work from Thameslink and Crossrail will slow.”

The output forecasts mark a distinct change in sentiment from those released by the Construction Products Association at the same point last year.

Back then, construction output was forecast to drop by 2.2 per cent in 2013 before more modest growth rates of 2 per cent and 3.7 per cent in 2014 and 2015.

At that point Help To Buy had not been announced and the industry was bracing itself for a tough first quarter due to severe weather.

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