Construction: hope for long-term improvement as approvals rise

The beleaguered construction sector - a good early indicator of later sales activity - has seen a welcome boost in some new figures released, relating to the three months to the end of February 2024.

But first the bad news: averaging £6,080 million per month, project-starts dropped 17% against the preceding three months’ performance, to stand 30% lower than a year ago. Main contract awards were also sluggish, dipping 13% in the run-up to March and down 34% on 2023 figures.

However, there’s good news too: detailed planning approvals registered a modest 5% increase compared to the previous year, despite falling back 24% against the preceding period. Approvals were boosted by the £1,268 million A12 Chelmsford to A120 junction improvement works in Essex.

The figures come from construction sector intelligence consultancy Glenigan, whose Economic Director Allan Wilen says: “Persistent adverse socioeconomic conditions continue to hold back significant spending in both the public and private sectors. However, a rise in underlying infrastructure starts during the last three months and a modest uptick in planning approvals compared to last year indicates the current situation may slightly ease during the second half of the year.

“Whilst the Chancellor’s Spring Budget commitment to targeted funding for 15 new special free schools and for new children’s homes will open up work for the sector, the Government has been cautious about making any big infrastructure commitments during the run-up to the next general election. This will affect the delivery of existing and planned major capital projects and the lack of clarity may have a knock-on effect across the construction sector, with private investors likely to keep their powder dry as they wait out the uncertainty."

Sector Analysis – Residential: Overall residential starts-on-site fell during the three months to February, dropping 16% during the index period to stand 19% lower than a year ago. Private housing was down 11% on the previous year, declining 17% against the preceding three months. Social housing also performed poorly, with work commencing on-site slipping back 31% during the three months to February and plummeting 30% against the previous year’s figures.

Sector Analysis – Non-Residential: The value of starts fell across most non-residential sectors during the three months to February, with health the only sector to experience growth against both periods. Offices and Community & Amenity were two of only three sectors to experience growth against the preceding three months, rising 18% and 21%, respectively. However, both failed to increase on the previous year. Health starts enjoyed a strong period, increasing 24% against the preceding three months and finishing 19% above last year’s figures.

Civils work also increased against the preceding three months, up 19%. However, these figures failed to increase against the year before. Civils growth was boosted by infrastructure activity, with starts increasing by nearly a third (31%) against the preceding three months but remaining down by a fifth (22%) on a year ago. Utilities starts increased 3% against the preceding three-month period but were 18% down on the previous year.

Industrial performance was disappointing, sinking 38% during the three months to February to stand 48% lower than a year ago. Retail lost ground as well, with the value of project-starts declining 22% against the preceding three months and 23% against the previous year.

Education was also on the decline, with the value of underlying project-starts slipping back 18% against the preceding three months to stand 39% down on 2023 levels. Hotel & Leisure starts decreased 3% against the preceding three months but crashed on the year before, falling back 39% compared with 2023 figures.

Regional Performance: London offered a bright spot, with project-starts performing relatively well compared to the rest of the UK, increasing 22% against the preceding three months. Despite this, starts failed to match 2023 levels, remaining 15% behind. It was a similar story in the West Midlands, with the value of project-starts increasing 15% against the preceding three months but remaining 8% down on the previous year. Scotland experienced a similar trend, advancing 2% against the preceding three months but falling back by a quarter (25%) on the year before.