Rapid Growth of UK Construction Sector Only Sustainable with More Support

As lockdown measures are eased, it will be fascinating to see how different sectors of the UK economy respond. Positively, the early signs are promising for the construction industry, says Jamie Johnson, CEO of FJP Investment.

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Jamie Johnson

is the CEO of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high-net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.

In March 2021, the construction sector expanded at its fastest pace for more than six years, with increased activity recorded in house-building, commercial and civil engineering, according to the IHS Markit/Cips UK construction purchasing managers’ index. So, how can we understand construction’s strong start to the year? And how sustainable is this boom likely to be?

COVID creates construction boom

The uptick in construction activity is primarily the result of the multiple lockdowns enforced across the UK over the last 13 months. Indeed, construction leaders surveyed as part of the aforementioned Markit/Cips research said the mobilisation of delayed projects was a key factor in explaining why they were so busy.

Another important factor is the rise in renovation and refurbishment works across both residential and commercial properties. Confined to their own homes, residential property owners have been eager to increase the space they have by commissioning extensions and loft conversions. In fact, a survey of 2000 UK homeowners by Checkatrade found that they spent an average of £2608 on property improvements in 2020; this is 15% more than in 2019.

A similar trend can be seen in the commercial real estate space – although naturally, the changes and reasoning behind them are very different. Office owners, for instance, have been undertaking work to better enable social distancing and ensure the necessary health and safety measures are installed. Meanwhile, hospitality venues have been undertaking works to maximise any outside space they have access to, meaning they can welcome back as many customers as possible in the months to come.

Significant concerns remain

However, while we should rightly celebrate the construction industry’s positive start to 2021, we must also acknowledge the significant challenges that remain.

The scale of these challenges was exposed by a survey of 3568 construction firms by the Office for National Statistics in late January 2021. It found that one-in-eight had little to no confidence they would survive until the end of April. COVID uncertainty, price rises for materials and labour shortages were all cited as major issues.

For me, there remains another critical challenge that must not be overlooked: difficulty of accessing finance. This is particularly a problem for SMEs in the construction sector. For example, a 2017 study showed that more than half (54%) of SME house-builders were being held back by an inability to access much-needed capital to fund projects. From the conversations I regularly have, I know the problem persists – and it must be addressed.

I was pleased to see Chancellor Rishi Sunak pledge £7.1bn over the next four years for the National Home Building Fund within the November 2020 Spending Review. Crucially, some of that investment will be targeted at helping SME house-builders. Yet further private investment will also be necessary to unlock the potential of the construction sector.

Lockdown measures are easing, and construction activity is clearly booming. But to sustain this and ensure the completion of more residential and commercial developments across the UK, we must tackle the common funding problems that construction encounters – this will only be achieved through collaboration between the public and private sectors.

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