September Project Starts Half in One Quarter Under Surging Inflation

IN ITS September 2022 Construction Review Glenigan reports that the number of project starts plummeted as rising material, energy, and fuel costs continues to hamper industry activity.

Detailed planning approvals and main contract awards also weakened against the same three-month period last year, as the cost of living crisis impacts economic growth and more stringent building regulations further constrain the development pipeline.

Industry Activity Stalled

With a shrinking pipeline and marked decline in project starts, the Glenigan September 2022 Construction Review says work commencing on-site fell 41% against the preceding three months to stand 48% down on the year before.

Weak Major project starts (>£100m) performance was the primary contributor to this period of consistent decline, falling 54% against the preceding three-month period. September also saw the value of major project starts decline by almost three quarters (-74%) against the previous year to average of £1,071 million per month.

The value of underlying work fared little better, with starts on-site declining 35% against the preceding three months to stand 30% lower than 2021 levels.

Glenigan says this downward progression is influenced by the ongoing materials inflation caused by the Russia-Ukraine conflict. And, with wavering consumer confidence as fears about the wider economy cool investment and stall short-term growth, construction has entered a ‘vicious cycle’ with no immediate exit available.

Contract Pipeline and Awards

However, the development pipeline seems to be gradually re-finding its feet. Main contract awards were relatively unchanged (-3%) compared with the same time last year, but fell 12% during the three months to August. Underlying main contract awards also declined 8% against the preceding three months to stand 6% down against the previous year.

Major contract awards also declined 4% against the preceding three-month period but were marginally up (+5%) compared to a year ago. Likewise, detailed planning approvals fell 7% against the preceding three months but remained 5% up on a year ago.

Major project approvals fell by a fifth against the preceding three months but experienced a value increase of more than a quarter (+26%) against the same period a year ago. Underlying approvals were unchanged compared to last year and increased 10% against the preceding three months.

Residential Sector Analysis

August was a poor month for residential construction output, with project starts falling against both the preceding three months (-38%) and the previous year (-28%).

Performance was weak, once again, due to ongoing materials inflation and high energy tariffs, as well as the impact of Part L’s introduction. The vertical-wide lack of clarity on the new standard inevitably led to a softening of activity as developers rush to remain compliant, stalling activity until regulatory requirements can be met, says Glenigan.

Major project starts were responsible for the decline, falling 65% against the preceding three-month period and 44% against the previous year. Results for main contract awards were also weak, falling back 12% compared with the preceding three months to stand 2% down on a year ago.

Additionally, Social housing project starts declined 38% against the preceding three months to stand 40% lower than a year ago.

Underlying private housing work starting on-site also declined 38% against the preceding three months to stand 28% lower than the year before.

The housing development pipeline also weakened, remaining largely unchanged from the previous year but dropping against the preceding three-month period. Detailed planning approvals fell 13% against the preceding three months, remaining unchanged from the previous year. Underlying approvals fell back 3% against the preceding three months and declined 4% against 2021.

Major contract awards in the private residential sector also faltered against the previous year, its value falling 27%, but registered a 5% increase against the preceding three months. Conversely, underlying contract awards fell back 5% against the preceding three months but grew 5% compared with a year ago.

Non-Residential Sector Analysis

Poor performance in the non-residential sector echoed the general tale of decline and fall in the construction industry.

A more positive outlook for health and education reported in previous versions of the Review was offset by a weakening in project starts during the period covered by this edition. Both sectors fell by a third and 18% during the three months to July, respectively, to stand down on the preceding three months. Each declined against the previous year, with health work falling back by a fifth and education starts by 36%.

Offices starts plummeted by more than a half (51%) against the previous three months to stand 48% down on the previous year. All other sector verticals posted a decline against the year before.

A strong performer during the early months of 2022, industrial project starts fell by a quarter against the preceding three months and by 27% compared with a year ago.

Civil engineering starts fell 27% against the preceding three months and 25% compared to a year ago. Utilities work starting on-site fell by a third while infrastructure starts fell by a quarter during the three months to August. Both sectors experienced a value decline of a quarter against the year before.

Hotel & Leisure construction starts were largely unchanged compared with the preceding three months but stood 38% lower than a year ago. In contrast, Community & Amenity work starting on-site fell 51% against the preceding three months, but declined only 5% compared with the same time in 2021.

Regional Performance

All areas of the UK experienced a decline against the preceding three-month period, with Northern Ireland the only area to experience growth against the previous year. This being said, the region posted a very significant growth of 87% compared with a year ago.

In contrast, London experienced the weakest period for project starts, with the value declining 55% compared with the preceding three months to stand 62% down on the previous year.

The East Midlands experienced a steep fall during the three months to August to stand 46% lower than the preceding three months, while Scotland fell 39% against this same period. Both regions respectively experienced a notable value decline of 37% and 35% compared with the year before.

Wales had a relatively good period compared to other areas, with project starts dropping back only 6% against the preceding three-month period and falling a modest 8% against the previous year.

Glenigan Economic Director, Allan Wilen

Allan Wilen, Economics Director at Glenigan, says, “The construction industry is still struggling under the burden of supply chain issues and materials inflation caused by the war in the Ukraine. This has only been worsened by a generally weak economic outlook, the cost of living crisis, and high energy costs.

“We can expect slow progress going forward as the UK heads towards all-time low levels of consumer confidence and a looming recession, but luckily we’re confident in our prediction in the Spring/Summer Forecast of industry recovery by 2023.”

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