Construction - UK - March 2015
“The construction market consistently exaggerates economic development when there is an upturn, which often leads to prolific market growth. This inevitably means that skills shortages emerge, with material shortages also reported in the house building sector, which was the first to emerge from the previous downturn.”
– Terry Leggett Senior Analyst
This report answers the following questions:
- How will the construction market develop over the next five years?
- How will the general election impact demand?
- What will be the key market drivers?
- What sectors offer the best prospects?
- How are company strategies being changed to accommodate market developments?
The construction market is traditionally identified as highly cyclical and trends in the sector generally tend to exaggerate overall GDP changes. The economic decline that followed the recession furthered this trend, but equally construction activity became increasingly buoyant as the economy started to improve in 2013. This continued into 2014 with a very strong performance in many construction sectors.
Construction output growth varies significantly but has been at its strongest since 2013, with output rising sharply in the middle of that year. Despite a fall in the rate of growth in Q2 2014, partly due to a very strong performance in Q1, prospects for the sector remain good with measures such as Help To Buy boosting new build housing projects.
In addition to the impact of GDP, certain sectors are significantly influenced by government policy on public spending. Previously this has often not reflected economic activity giving sectors a cushion on overall development, but the recent economic turmoil has been of such magnitude that the government has been forced to reduce public expenditure irrespective of political policy.
Home ownership fell to its lowest level in 25 years in 2012/13, while the number of private tenants overtook the number in social housing for the first time. Ownership levels have been driven down by rising prices and tougher mortgage criteria, while charities have called on the government to increase the number of affordable homes being built.
The definitions used in this report on the construction sector are from the ONS. The civil engineering sector has been excluded, but a detailed report on this sector is available separately from MBD (The UK Civil Engineering Market Development). A number of sectors are defined in the construction sector, which comprises both publicly and privately financed projects.
Public work is for any public authority, such as government departments, public utilities, nationalised industries, universities, the Post Office, new town corporations, housing associations, etc.
Private work is for a private owner, organisation or developer, and includes work carried out by firms on their own initiative. It also includes work where the private sector carries the majority of the risk/gain, i.e. in principle, all PFI contracts are private.
The sectors include the following:
Public sector housing: comprising housing schemes, homes for the elderly and the provision in housing sites of roads and services for utilities such as gas, water, electricity, sewage and drainage, which is financed either through local authorities or housing associations.
Private sector housing: comprising all privately-owned buildings for residential use, such as houses, flats, maisonettes, bungalows, cottages and the provision of services to new developments.
Public sector non-residential: which is defined as comprising a number of activities:
Coal mining: all new coal mine construction, such as sinking shafts, tunnelling etc.
Schools: state schools or colleges, including technical colleges and institutes of agriculture.
Universities: including halls of residence and research establishments.
Health: comprising hospitals, medical schools, clinics, welfare centres and adult training facilities.
Offices: comprising local and central government offices, including town halls, and offices for all public bodies except the armed forces and police headquarters.
Factories: comprising all publicly owned factories, shipyards, warehouses and skill centres.
Garages: comprising buildings for storage, repair and maintenance of road vehicles, transport workshops, bus depots, road goods transport depots and car parks.
Shops: comprising municipal shopping developments for which the contract has been let by the local authority.
Oil: comprising oil installations.
Agriculture, entertainment, communications: comprising buildings and work on publicly financed horticultural establishments, fen and agricultural drainage, and veterinary clinics. Theatres, restaurants, public swimming baths, caravan sites at holiday resorts, works and buildings at sports grounds, stadiums, racecourses etc. Post Offices, BBC and IBA installations.
Miscellaneous: comprising all work not clearly covered by other previously identified headings, such as fire stations, police stations, prisons, reformatories, remand homes, civil defence work, UK Atomic Energy Authority work, council depots, museums, and libraries.
Private Industrial: comprising factories, warehouses, wholesale depots, and all other work and building for the purpose of industrial production or processing, oil refineries, concrete fixed leg oil production platforms (but excluding rigs), and private steel works.
Private Commercial: comprising a number of separate sectors:
Offices: including all office buildings and banks.
Shops: comprising all buildings for retail distribution, such as shops, department stores, retail markets, and showrooms.
Entertainment: comprising theatres, concert halls, cinemas, hotels, public houses, restaurants, cafés, holiday camps, swimming pools, works and buildings at sports grounds, stadiums and other places of sport or recreation, and youth hostels.
Garages: comprising repair garages, petrol filling stations, bus depots, goods transport depots and any other works or buildings for the storage, repair and maintenance of road vehicles, and car parks.
Schools and Colleges: comprising schools and colleges in the private sector, financed wholly from private funds.
Agriculture: comprising all buildings and work on farms and horticultural establishments.
Health: comprising all private hospitals, nursing homes and clinics.
Miscellaneous: comprising all work not clearly covered by other headings such as exhibitions, caravan sites, churches and church halls.
Repair and maintenance is defined to include the following:
Housing: including any conversion of, or extension to, any existing dwelling, and all other work such as improvement, renovation, refurbishment, planned maintenance and any other type of expenditure on repairs or maintenance.
All other sectors: comprising any repair and maintenance work of any type including planned and contractual maintenance.
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