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North-east the place to be as soaring growth forecast

After being one of the worst-hit regions for construction output performance, prospects are improving in the North-east and the region is forecast to be the second-fastest growing UK region this year and next.

The North-east’s construction industry was one of the worst hit of all the UK regions during the recession.

Between 2009 and 2012, the region saw annual average output falls of 9 per cent, against a much smaller yearly decline of 2 per cent for the UK, while output grew by a negligible 1 per cent last year.

More sustained growth is on the cards for 2014 and 2015, as the 65 per cent increase in new orders reported in 2013 starts to feed through into output.

Average annual growth by region 2014-15 ONS Experian

Source: ONS/Experian

Annual average increases of 7.1 per cent are forecast for the North-east, the second-highest annual average expansion after Yorkshire & the Humber (7.5 per cent).

Public housing to see fastest growth

Of the new work sectors, the strongest rate of expansion is likely to come from public housing, which is forecast to grow by 22 per cent on average in 2014 and 2015.

“Growth in the North-east is therefore likely to be primarily driven by the private housing, infrastructure and commercial markets”

Newcastle City Council plans to spend around £130m to build 1,200 new homes on council-owned land over the next five years.

Your Homes Newcastle, the council’s arm’s-length housing management organisation, will construct around 750 homes, with the rest being built by housing associations and other affordable housing providers. The project is part of a wider council-run £450m construction scheme.

North-east vs GB breakdown of new work by sector ONS Experian

Source: ONS/Experian

However, public housing accounts for just 4 per cent of total construction output in the North-east and will have a minimal impact on overall growth. Growth in the North-east is therefore likely to be primarily driven by the private housing, infrastructure and commercial markets.

Double-digit growth for infrastructure

Annual increases of 14 per cent in 2014 and 2015 are expected for infrastructure – much higher than the UK average of 5.5 per cent. Work has started on a new biomass power station in Teesside, with completion scheduled for 2015 at an estimated cost of £200m.

The plant will be fuelled by around 275,000 tonnes of recycled wood every year and will provide some 45 MW of electricity – enough to power over 80,000 homes. The development, expected to operate initially for 25 years, would include fuel collection and storage facilities.

“Despite moderate house price growth, there is little doubt that the region’s private housing output is being boosted by the government’s Help to Buy scheme”

There are other sizeable schemes due to start over the forecast period that will help to keep the sector buoyant, such as a new extension of Riverside Quay at Tyne Dock, worth around £180m.

Work is due to start at the beginning of 2015 and last for three years. The project will also involve the development of new infrastructure for transportation, handling and storage facilities for imports of wood pellet.

Private housing and commercial output to rise

Both the private housing and commercial sectors are expected to see annual average output growth of 6 per cent.

North-east construction output 2009-15 ONS Experian

Source: ONS/Experian

Despite moderate house price growth, there is little doubt that the region’s private housing output is being boosted by the government’s Help to Buy scheme. This has been reflected in higher levels of new orders, output and starts.

Within commercial, a number of decent-sized projects should start this year, such as the works at Teesside hospital on Wynyard Business Park. The hospital trust is hoping to fund the £300m, three-year scheme from pension fund loans, which would be the first time this option has been used in the UK.

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