Partial construction recovery expected to begin next year

At the Global Market Conference, putting the timber sector in context with the rest of the construction industry was Allan Willen, Economics Director at Glenigan.

“The UK economy, property markets and construction industry have all been buffeted by successive economic shocks resulting from Brexit, the pandemic, the war in Ukraine and continuing political turmoil,” Allan began.

These shocks, he said, particularly the Covid-19 pandemic, have acted as catalysts for accelerated structural changes in the economy and the demand for property which, in turn, are shifting the current opportunities for the construction market.

“After a sharp weakening of construction generally in Q1, things stabilised a bit in Q2 due to the impact of Building Regulation changes in June, but overall the industry is down about 35% on 2022 levels,” Allan said.

Now, Allan believes the continuing challenges are being exacerbated by a realisation in the private sector that interest rates and inflation will both stay higher, and for longer, than was expected six months ago.

Although the UK has stayed out of recession, Allan said the Bank of England remains concerned that higher inflation is embedding itself into the economy, with the impact of that being felt right across construction.

“In general, most construction material prices have stabilised, and are even slightly lower than they were a year ago,” Allan said. “So price inflation has stabilised, albeit at a higher level than it was 12 months ago.”

The number of residential starts have seen a sharp, dramatic fall in value of 23% this year, as have the number of mortgage approvals and property transactions, with house prices now down year on year.

This, Allan said, is discouraging people from moving, but does provide an opportunity for sales to first-time buyers who are outside of the housing chain. There has also been a resurgence in the Build to Rent property market post pandemic.

The project approvals pipeline remains very strong, but is not leading to actual project starts just yet. Nevertheless, Allan said, a 4% rise in starts is expected during 2024, with that figure expected to be stronger still in 2025.

As with the other speakers at the Conference, while Allan focused on the short-term challenges, he was also positive that improvements do lie ahead.

“We do believe that interest rates are at their peak now, so falls will happen,” he assured delegates. “A stronger recovery does lie ahead, with a return to growth forecast to begin from 2024. We’re expecting a partial recovery in underlying commercial and industrial starts in particular over the next two years, with new opportunities generated and the economic recovery lifting private sector activity from 2024.

“The current growth in online sales is also boosting demand for logistics space, especially in the Midlands and north west regions, with investment in final-mile delivery facilities across the UK.

“The fit-out and refurbishment of offices is also bringing opportunities as companies adjust to hybrid and new ways of working post-pandemic, creating more collaborative spaces when people do come into the office,” Allan concluded.