is the Economic Director at Glenigan
The construction industry has suffered a challenging period in recent months, experiencing delayed project starts and planning approvals throughout 2022 as the industry has been squeezed by a variety of external factors. Despite this, Glenigan’s ‘Summer 2022 Construction Forecast’, which provides overall sector and vertical-specific insight into performance over the next three years, predicts that the construction industry will return to growth by 2023. The data from the forecast suggests that, in spite of stifling economic conditions, impeding growth for the rest of the year is expected, and 2023 is anticipated to have a more positive outlook, posting a value growth of 8%.
Supply chain stumbling blocks
The recent decline in construction output can be largely attributed to ongoing supply chain issues caused by the conflict in Ukraine, which continues to create considerable economic uncertainty. With little sign of easing, it has accelerated material inflation, creating a significant industry stumbling block that will take time to overcome. The fallout from rising materials costs and labour shortages is sure to stall industry recovery in the short-term, derailing the strong recovery seen post-COVID.
Aside from this ongoing conflict, current inflation spikes, higher taxes and rising mortgage costs are expected to constrain activity in consumer-related areas, such as private housing, retail and hotel and leisure.
Housing starts buoyed by Build-to-Rent
Although a strong development pipeline of planning approvals energised the housing market in 2021, with the sector enjoying an upsurge of new housebuilding projects, it has given way to a downward spiral in activity.
This can be partially accounted for by the removal of temporary Stamp Duty relief in October of 2021, as well as rising inflation, fragile consumer confidence and higher interest rates. As the construction sector battles rising prices, taxes and mortgage costs, housebuilders are expected to focus on building developments that have already moved on site, rather than starting new projects.
This downturn in the housing market is predicted to be counteracted by a renewed spurt of activity thanks to an uptick in Build-to-Rent schemes intended to meet the rising demand for residential housing. This is a fast-growing sector expected to increase rapidly in value as household and country-wide economic prospects improve.
The realities for non-residential
There is also hope for the non-residential sector, with industrial starts set to be a growth area going into 2023. This is due in part to a vast appetite for online retail, which accelerated during the pandemic and spurred an increase in the construction of warehouses and logistics projects.
In the public sector, Government investment is predicted to be an important driver for construction activity over the next three years. Social housing, education and civils and infrastructure are all set to grow as an increase in capital funding helps to lift the value of project starts across these verticals.
Luckily, markets are now starting to stabilise as new solutions to material supply chain issues are developed and implemented, and the economy begins to right itself in the wake of global crises. While the short-term picture looks disheartening, the underlying data proves that the industry is on its way to recovery.