The industry is set for a boost in starts in 2014 as the swell of optimism over recovery increases, though the private sector is expected to provide the majority of the upturn.
Private sector investment wil be essential for sustained recovery in construction and is expected to increase in 2014 and beyond, according to new research from Glenigan.
The business intelligence unit’s Construction Prospects for 2014 report forecasts construction starts across the industry to grow by 4 per cent next year as confidence around recovery gains further momentum; this follows a 2.5 per cent rise in starts in 2013.
The report highlights a strong improvement in the value of detailed planning approvals for the first nine months of 2013, indicating a firm development pipeline for the next year and beyond.
“The value of planning approvals has been fairly broad – in the first nine months of this year every sector we’ve tracked has seen an upturn,” says Glenigan economist Tom Crane.
“We’re finally seeing a fairly wide recovery, though we are still seeing indications of public sector cutbacks.”
Private sector recovery
The value of private housing project starts is unsurprisingly forecast to grow in 2014, by 9 per cent.
“We’re seeing an increase in more speculative developments, which encourages the sense of confidence that there is demand for these projects”
Tom Crane, Glenigan
The private sectors – broadly classified as hotels and leisure, retail, offices and industrial – are those Glenigan considers crucial to a sustained return to growth.
Office starts are expected to climb by 8 per cent, hotels and leisure will see a 13 per cent rise and retail, following a 7 per cent dip in a tough 2013, is set for a return to strong growth of 24 per cent.
“Business investment has been held back over the past few years, but there is enough confidence now,” Mr Crane says. “We’re seeing an increase in more speculative developments, which encourages the sense of confidence that there is demand for these projects.”
London is the focus of this activity, but a shortage of available space in large cities in other UK regions, such as Aberdeen, Birmingham, Belfast and Leeds, means growth in office starts is expected to continue into next year.
Small-scale retail to grow
Growth in retail starts will be somewhat dependent on refurbishment work through smaller convenience outlets rather than large-scale developments.
Mr Crane points out that retail sales and consumer spending are picking up, though not by a huge amount, and “shops have to work hard for their money”.
“I think we’re going to see more development in shopping ‘experiences’ in city and town centres – focusing on the experience similar to a day out,” he says.
Meanwhile the industrial sector is benefiting from the growth in online shopping, with Glenigan’s report citing an increase in distribution centre starts.
There will be a rise in work volumes in the manufacturing sector, though output remains below the 2011 average and way off pre-recession levels, which suggests a drop in capacity and may suppress demand for premises.
Fall in social housing starts
Despite the confidence within the private housing sector, overall residential starts are likely to be dampened by a fall in social housing starts of 23 per cent next year compared with 2013.
“Planning approvals for social housing are also positive but there is a question around where the money is going to come from”
Tom Crane, Glenigan
Mr Crane says the sector has continued to surprise, with a fairly resilient performance during the downturn. But although social housing activity is currently 40 per cent higher than in 2007, anticipated reductions in public sector spending mean this activity is unlikely to be maintained.
“Planning approvals for [social housing] are also positive but there is a question around where the money is going to come from,” he says. “The forecast is partly recognising that we haven’t got that many projects due to start.”
London drives growth
London remains the central focus for growth, with a 22 per cent rise this year taking the level of starts 34 per cent higher than those in 2007. Glenigan does, however, expect starts to be broadly flat in the capital in 2014.
Other regions are likely to pick up on the back of improvements in the housing market and increased confidence, lower interest rates and easier mortgage availability.
Civil engineering and infrastructure work will also support this as spending turns towards roads and focuses less on rail.
“Previously we started to see green shoots, then it seemed to dissipate, but the consensus is now widespread that we’re finally through the worst”
Tom Crane, Glenigan
While rail will still have a large part to play over the next year, with Crossrail and Thameslink programmes providing activity, the pipeline of roads projects is “more geographically spread”, Mr Crane says.
The research strongly supports the sentiment that sustainable growth is in the pipeline, but it depends largely on continued confidence, particularly within the private sectors.
Mr Crane says: “Previously we started to see green shoots, then it seemed to dissipate, but the consensus is now widespread that we’re finally through the worst.
“The only way we are going to have sustainable growth is through private sector recovery.”