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Construction output forecasts: Leading Edge

Leading Edge forecasts 10.5 per cent growth in output between 2014 and 2017, with commercial and housing being the core drivers.

Housing and commercial will offer the largest growth stimulus over the next two years, while London and the South-east are set to continue to account for more than one-third of the UK’s construction output in 2014/15.

The latest forecasts from construction consultancy Leading Edge reveal commercial output will be 4.7 per cent higher this year than in 2013, before a significant uplift of 7.1 per cent in 2015.

Growth will then slow to between 4 per cent and 5 per cent in 2016/17.

Forecast construction output 2013 to 2017 Leading Edge

Source: Leading Edge

Within commercial output, offices will show the most strength, says Leading Edge managing director Mel Budd. “We expect more growth in offices, particularly in London,” he says.

“In terms of new orders, offices is looking more positive compared with 12 months ago, and with stronger economic growth and increased confidence schemes are starting to be dusted off as demand from premium office space increases.”

Despite London being expected to show the largest surge in office output, particularly around speculative developments, there is evidence of activity stirring in other large cities around the country, Mr Budd adds.

Double-digit growth over four years

Leading Edge forecasts total construction output to grow by 4.9 per cent this year compared with 2013’s upgraded forecast, then by a further 4.1 per cent in 2015. Between 2014 and 2017 output is forecast to rise by 10.5 per cent.

Strong growth is forecast for the industry’s smallest sector, industrial, particularly in 2015 and 2016, of between 7 and 9 per cent. This is coming from a very low base and “an oversupply in industrial floor space remains in some areas”, Mr Budd says.

Infrastructure output, in volume terms, is expected to peak in 2016, but growth of more than 5 per cent growth for 2014 and 2015 will subsequently slow down. Leading Edge forecasts a fall in the sector in 2017 compared with the previous year.

“The budget for Network Rail is not as large as it was, Crossrail should be winding down and nuclear work is not going as fast as previously predicted,” Mr Budd says.

“Within roads, there is hope surrounding plans from the Highways Agency, but local authority budgets for road improvements remain vulnerable to cuts.”

Housing caution

Between 2013 and 2017, private housing output is expected to surge by 28 per cent. The latter half of the forecast period, like infrastructure, is showing a distinct slowing in growth for the sector.

“Sustained growth in house prices, particularly in the South-east, could hold back demand as more and more buyers are priced out of the market”

Mel Budd, Leading Edge

Mr Budd says: “There is going to be stronger growth this year and then it will start to tail back as Help to Buy finishes in 2016.

“There are also considerations around housebuilders having the workforces to deliver the large increase in housing required, having cut so deeply from 2008.

“Sustained growth in house prices, particularly in the South-east, could hold back demand as more and more buyers are priced out of the market. The private rental sector may be the winner from this trend.”

Public housing output meanwhile will see a dip next year, before a return to growth in 2016.

South-east engine for growth

Leading Edge expects London and the South-east to account for more than 35 per cent of total construction output across the country by 2015, with the capital and the East of England to be the only regions to see output grow compared with 2005 levels.

Proportion of construction output by region 2005 vs 2015 Leading Edge

Source: Leading Edge

All regions are forecast for year-on-year growth this year and next, albeit from a very low base for many outside the South-east. The housing, commercial, infrastructure and industrial sectors are showing the most promising prospects outside the capital.

 

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