Construction Industry Insights September 2022
The latest analysis from industry commentators shows both peaks and troughs in activity as planning applications and approvals, contract awards, and project starts are all reviewed.
While the data for the third quarter is gloomy, September showed a slight improvement on August, and the decline in project-starts has begun to stabilise.
Contract awards fell back to average levels of £5.8bn
After a surprisingly strong July, contract awards returned to £5.8bn in August. That’s the average level we were seeing in Q2. According to the September Barbour ABI Snap Analysis, the commercial and the hotel and leisure sectors experienced a drop in contract awards. August saw the lowest residential monthly value since June 2020 (around the time of the 1st Covid-19 lockdown). However, August is usually a slow month and given the current levels of uncertainty, this isn’t such a negative outcome.
August Planning Approvals Increased to £9.4bn after 3 poor months
In the Barbour ABI September Snap Analysis, the analysts reported that August’s planning approvals reached above-average levels with £9.4bn. August was the first good month since April and all sectors posted month-on-month increases. There was a particular rise in planning approvals within the residential, infrastructure, industrial and healthcare sectors.
The Infrastructure sector continued to perform well with £1.9bn of new contract awards and an increase in planning approvals. This was attributed to higher activity in road construction, as well as major new prison and ongoing renewable power generation projects.
Fewer planning applications in Q3 compared to Q2
The overall planning applications fell for the third successive month with only £1.2bn planning applications in July, down from previous highs of £4bn that the industry saw in March.
Sector Spotlight: Healthcare
Both Barbour ABI and Glenigan analysts report that the healthcare sector pipeline looks strong with a higher level of planning approvals that haven’t been seen since spring. Glenigan pointed out that The Department of Health is now the construction industry’s biggest client, overtaking the Department of Transport. In the 12 months to July, the DOH awarded contracts worth over £2192 million. This is 7% up on the same stage a year ago.
Glenigan data: Q3 project starts fall 27% compared to Q2
The underlying value of work starting on-site fell 27% during the three months to September, 23% lower than a year ago. Despite overall stagnation, civil engineering project-starts increased by 1% against the preceding quarter, as well as 11% against the same period last year. Hotel & Leisure project-starts increased 13%, compared to Q2 but remained 28% down on a year ago, according to Glenigan’s September index of construction starts.
After doing well in the first half of 2022, office project-starts saw a 30% fall against Q2 and a 37% drop compared to last year. Further echoing the downward trend, industrial (-13%) and retail (-14%) experienced relatively small declines against the preceding quarter, but suffered falls of 16% and 27% respectively against the same period in 2021.
Stabilising project starts levels, but we are not out of the woods yet
Commenting on the data from the October index, Rhys Gadsby, Glenigan’s Senior Economist says:
“The rapid decline in project-starts of recent times has, encouragingly, stabilised over the three months to the end of September. The cost of imported construction materials and supplies, however, is projected to continue creeping up in the coming months due to a weakening pound and higher than expected interest rates. This will likely cause fresh challenges for the construction industry, suggesting that we’re not out of the woods yet. However, the industry can take hope from signs of individual vertical recovery, for instance civil engineering project-starts which posted a period of growth against last year.”
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