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Mixed fortunes for key construction sectors

23 February 2017

Members can download the full Winter 2016 / 2017 report for free.

While the Construction Products Association (CPA) predicts positive growth in construction output over the next three years, there is a considerable degree of variation in the fortunes of the key construction sectors and sub-sectors—and key risks to growth over the next three years.

Although the CPA forecasts anticipate that total construction output will only rise marginally each year over the 2016-18 period, with sharp falls in activity in some sectors, significant growth is expected in sectors less affected by upfront investment infrastructure and private housing. Construction output is predicted to rise by 0.8% in 2017, 0.7% in 2018 and 2.2% in 2019.

Private housing starts are expected to rise by 2.0% per year between 2017 and 2019. Private house building tends to follow the general housing market and, as a result, property transactions are generally a good guide to demand within the sector. Private house building, over the long-term, is around 10-12% of total transactions in the market.

However, two recent factors have distorted this relationship. Firstly, issues regarding affordability have meant that major house builders and potential home owners at the lower end of the housing ladder, have increasingly become reliant upon Help to Buy equity loans. In addition, the additional stamp duty for second homes and buy-to-lets that was introduced in April 2016 led to a surge in property transactions in March with a consequent fall in transactions during the following quarter.

Public housing starts are expected to fall throughout the forecast period. Falls of 13.0%, 2.0% and 1.0% are expected in 2016, 2017 and 2018, respectively. Local councils build less than 5.0% of social housing so the focus is clearly on housing associations to deliver social housing but they remain severely hindered by funding constraints.

In recent years, the commercial sector has enjoyed consistent growth as increases in activity in new offices construction, due to rising demand for high-profile office space in the finance, media and tech sectors, offset declines in retail construction.

Output in 2016 rose by an estimated 5.4% and activity on site currently remains high but the sector is expected to experience declines from the second half of this year. Output is expected to fall 0.8% in 2017 before sharper falls of 3.6% and 2.0% in 2018 and 2019 respectively. The uncertainty post-referendum has had an adverse impact on new contract awards in the offices sub-sector during the second half of 2016.

Output in the industrial sector is expected to fall by 3.8% in 2017 and by 3.7% in 2018 before remaining at in 2019.Whilst the depreciations in the value of Sterling are likely to hinder retail, they may provide a boost to UK manufacturing exports, which in turn, may raise the demand for factory floor space.

Members can download the full Winter 2016 / 2017 report for free.

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