Regional Overview

Note: The impact of the coronavirus on the construction industry in middle and long term remains unclear. Until the industry resumes and the situation becomes clearer at a wider level, we would refer you to Glenigan’s wider analysis of the impact of C19 on the construction industry in the UK construction prospects section on insight.

Glenigan starts data continue to point to a shifting regional pattern of construction. Overall the value of underlying project starts stabilised prior to the C19 outbreak amidst a shifting picture of regional variations in project starts that will shape construction activity across the country beyond the current year. 

Project starts fell in the main English regional cities of Birmingham, Leeds and Manchester according to Deloitte’s 2019 crane hire survey and only on-going work held up construction activity. A revival, albeit after a steep fall, has however occurred in London but the focus continues to move out towards the regions and growth will be strongest in Scotland, Northern Ireland, South West, the West Midlands, Wales and Yorkshire & Humberside, where starts are all expected to outperform the UK as a whole.

Some confidence had returned to the housing market in the early part of 2017, with turnover and prices strengthening according to the Halifax. However subsequent weakening in house price inflation reflected a slowing in property transactions over the summer months, although the Halifax anticipates a shortage of properties for sale will provide support for prices in the near term.

Housebuilders strengthened their planning pipeline across the country in 2016 and 2017 but this began to taper off in terms of land acquisition in 2018. Housebuilders do however continue to develop their own strategic landbanks and the National House-Building Council reported the strongest rise in starts for 12 years in in the quarter to June 2019. Although this was followed by a dip, this earlier spurt in starts, allied to a strong residential development pipeline and an improvement in social housing should go some way towards sustaining residential project starts in many regions.

Nationwide data showed that house prices in London grew at a slower rate than the national average over the two years to 2018. Indeed house prices in London were little changed during 2017 and contracted by 0.8% in 2018. This compares with a 1.3% rise in prices nationally. The last time that the capital was out-performed by the national average was at the height of the global financial crisis and in 2019 prices in London were the worst performing in the UK with a fall of 1.7% yet starts, boosted by buy-to-let, rose.

Overall starts were showing indications of a return in investor confidence, albeit a wobbly one. Whilst restrictions on government investment continue to constrain some public sector workloads, activity in the private sector was taking up some slack, particularly in those parts of the country such as some parts of northern England where government funded work has historically accounted for a large slice of industry output.

With the exception of Yorkshire and Humberside, the northern half of England enjoyed a positive performance in 2018, but in London the drop off in activity experienced in 2017 grew steeper as the commercial sector suffered from the wider political and economic climate. This is likely to be exacerbated going forward by continued weakness in house prices in the capital although indications are growing in 2020 that prices are stabilising in the capital. The prime central London market is expected to weaken further going forward due to private sector underinvestment although there are signs of growing investment in the student accommodation sub-sector and this is reflected in recent NHBC data.

Private non-residential activity is strengthening in other parts of the UK particularly in the Midlands, where a devolved health budget and the HS2 rail link provide grounds for optimism with a swathe of major contracts valued at £6.6 billion awarded in the summer of 2017. Elsewhere, while there was weakness in industrial starts in 2018, some improvement in investment in logistics and light industrial space is likely going forward.

Limited availability of prime office space in major regional centres has also prompted a rise in commercial planning approvals and project starts. Again this is more evident in the regions and there have been significant rises in office projects in Belfast, Leeds and Manchester in the 2019 Deloitte Crane Hire Survey,

Recent performance

The value of construction output in Great Britain, excluding routine repair and maintenance work, grew by 5% in 2016 and 2017, according to official data released by ONS. Regionally, growth during 2016 was broadly based, with sharp increases in output recorded in London, southern England and the Midlands. Wales also enjoyed strong growth with output 13% up on the previous year. A more divergent pattern of growth emerged from the first nine months of 2017. Firm growth in the South West, the West Midlands, Wales and across the north of England is in sharp contrast to flat or falling output in London, Scotland, the East Midlands and the East of England.

Output receded in London, the North East, Scotland and Yorkshire but Q1 2018 also brought a strong rises in the West Midlands and Wales and smaller increase in the North West and South West, illustrating the continuing rippling out effect but by Q2 2019 nationally output had shrunk by 1.3%.

Construction Output Growth in Great Britain 2018 and 2019

Underlying construction starts and planning approvals

Note: Underlying projects are schemes with a construction value of £250,000 to £100 million. yoy – year-on-year.
Source: Glenigan

In 2017 and 2018, only four of the 12 economic regions of the UK experienced a rise in starts but additions have since been made to the project pipeline across almost all of the UK. In 2018, Glenigan had recorded rising values of work achieving planning approval in seven of the 12 constituent regions and nations of the UK with the balance experiencing a fall but this drop only reached double digits in three areas – Northern Ireland, Wales and Yorkshire – and only six regions experienced a fall in starts in 2019.

Housing remains a key driver across the UK with NHBC data showing that registrations rose in six of the 12 regions in 2018 with the biggest increases in the North West, Northern Ireland and Yorkshire & Humberside. A more recent increase in buy-to-let and social housing work is also driving up housing starts in London but by the quarter to July 2019 starts had only risen in five of the 12 UK regions.

During 2019 and into 2020, a further strengthening in the private housing market and increases in commercial and industrial sector development should bolster the East and West Midlands, but a shift in industry workload continues.

Prospects

Geographically, construction growth is forecast to continue to become more broadly based across the UK than in recent years. Having led the initial upturn in construction activity, project starts in the capital weakened in 2016 and are estimated to have fallen by 14% in 2017 and fell back by 22% in 2018 before rebounding strongly in 2019. In contrast growth is anticipated in the South West, West Midlands, Yorkshire and Humberside, Scotland, Wales and Northern Ireland, supported often by improved housing market activity.

While there are continuing indications that the property-driven bubble in the North West, which has been centred mainly around Manchester and to a lesser extent Liverpool, is bursting, elsewhere there are expectations of improvement.

This shift in project starts takes time to feed through to construction output, however we anticipate that the strengthening in project starts in other parts of northern England and the West Midlands that helped lift construction output during the second half of 2018 and into 2019 will continue to drive output higher in most of these regions in the near-term.

Forecast change in the value of underlying construction starts

Note: Forecast prepared in April 2020.  Underlying projects are schemes with a construction value of £250,000 to £100 million. p – provisional, f – forecast.

Source: Glenigan