Component Developments Construction Market Overview, August 2017

FIGURES FROM THE ONS SHOW DECLINES IN CONSTRUCTION ACTIVITY OVER THE SECOND QUARTER OF 2017, WHILE BARBOUR ABI CONTRACT AWARD VALUES SLOW AT THE START OF THE THIRD QUARTER.

The latest figures from the ONS indicate the construction sector in the UK shrank by 0.1% between April and May 2017. However, industry output was 0.9% higher than June 2017. One suspected reason for this is the monthly decrease in output for new work in the private commercial and infrastructure sectors. 

According to Barbour ABI data on all contract activity, July witnesses a decline in construction levels with the value of new contracts awarded at £5.4billion. This is a 2.2% decrease from that in June, and a 7.5% decrease from the same time last year. The number of overall construction projects within the UK in July decreased by 26.2% on June.

Residential

Activity in the residential sector increased slightly in July with the total value of projects valued at £2.5billion. This is a 1.4% increase compared to June, and is 51.3% higher than July 2016. The latest house prices indices for July from Halifax showed that average house prices are rising at 2.1%, down 0.5% in June. However this is the fourth consecutive quarterly decline in house prices indicating a softening in the housing market. The Bank of England mortgage approval figures show that while price levels may be moderating, the number of mortgage approvals is increasing.

The type of projects awarded in the residential sector was dominated by private housing this month which accounted for 73% of the value of contracts awarded in July.

Infrastructure.

The value of contracts awarded in the infrastructure sector in July was 22.9% lower than the previous month, and 49.2% lower than this period last year. Civil engineering was the dominant contributor to the £784 million. It is clear that the infrastructure sector is heavily reliant on investment from the public sector and while investment levels have been broadly flat, the government has indicated this will change. Schemes such as HS2 will have an impact on these figures.

Commercial and Retail.

The value of contracts awarded in the commercial and retail sector has decreased 41.9% from the same period last year. Offices were the dominant type of project in the sector accounting for 59% of the value of contracts awarded this month, general retailing is the next largest sector with 23% of contract award value, which is an increased from its 12% share in July 2016.

Hotel, Leisure and Sport.

Contract award levels in the hotel, leisure and sport sector was 1.1% higher than June, at £356 million. This was also 1.5% higher than the same period last year, indicating evidence of a longer term improvement in the performance of this sector.

The hotel/motel category was the most dominant in the sector this month, up by 2% from June 2016. This may be due to an increase in UK tourism. Figures released by the ONS show foreign visitors to the UK were up by 34% in June 2017, compared to 2016. At the same time, the number of UK residents deciding to holiday within the UK was up 4.4% compared to the same period last year.

Industrial

Activity in the industry sector increased in July with the value of contracts awarded at £587 million, this equates to a rise of 15.6% on the value of June, and is 7.8% above the figure recorded in the same period last year. The types of project awarded in the sector were mainly in warehouse/storage which accounted for 44% of contract values, significantly higher than the 21% recorded in July 2016. The outlook for the industrial sector is stable with the value of contracts at advanced planning totalling £815 million, which is £399 million more than the value of contracts that were awarded in July indicating the pipeline of work within the industrial sector may be modest.

Medical and Health

Although contract awards are 19.7% lower than the same period last year. July saw he second month of value growth within this sector, increasing by 33% in July compared to June. This indicates that the industry is recovering from its recent slump, however currently still lags behind historical performance.

Due to the award of Nuffield Hospital in Manchester, and the private Cleveland Clinic; private hospitals are the dominant sub-sector this month. Private hospitals accounted for 61% of the value of contracts in July 2017. However, while there was an increase in the value of contracts awarded in July the pipeline remains subdued indicating a continuation of low levels of performance in this sector.

Education

State primary school contracts were the dominant sub sector in education in July, which accounted for 45% of the total value awarded.

The education sector is showing signs of a developing slump after a fall in contracts again this month. The value of contracts awarded was down 1.1% decrease from June, and 22% lower than the same period last year. Currently, the highest value contracts awarded at advanced planning stage is the University of Leeds campus for engineering- with an estimated value of £37.7 million this scheme is to develop a 6-storey research and teaching building.