Modest growth is predicted in the construction sector in 2014, with improved growth between 2015 and 2017.
Property consultant GVA has published its latest Building Bulletin, summarising the Construction Outlook as we reach the end of 2013. This is a review of the construction market covering the economic property market outlook for development, the movement in material prices, labour costs and tender prices, and the medium term outlook for the sector.
The overriding sentiment is positive, with prospects for the construction industry having improved over the past 6 months. Following a small fall in output this year, GVA expects modest growth in 2014, with improved growth between 2015 and 2017.
Gordon Hewling, director of the building consultancy team at GVA’s Newcastle office, said: “When finalising the latest Construction Outlook, it was interesting to look back over previous reviews, noting the effects on the industry through the depths of the economic downturn, with weak economic growth and static capital value increases forcing development activity to grind to a halt.
“Over the past six months, economic news has markedly improved with above-trend economic growth. Development activity in London has strengthened further in 2013, with office and residential construction at a high level, reflecting strong occupier demand.
“Outside London, the picture had been very different, but over the oast six months construction activity has increased, particularly in the residential sector. Rising capital values, low tender price inflation, supply shortages and increased availability of finance have all played their part.”
According to the Construction Products Association, the positive economic outlook should translate itself into growth in construction output in the years to come.
The industry prediction is an overall fall of 0.5% in construction output in 2013 is forecast to be followed by 2.7% growth in 2014 and almost 5% growth over the subsequent three years to 2017.
GVA expects private housing and infrastructure to provide the initial drivers of growth, while commercial activity, accounting for a fifth of all construction output, will show significant growth by 2015. Public sector construction is forecast to resume a modest level of growth by 2015.
Information published by the RICS through its Building Cost Information Service (BCIS), indicates tender prices have shown an increase of approximately 1.7% in the year to date and are forecast to increase by 3.4% during 2014, with longer term growth of up to 8% per annum by 2017.
While there has been little movement in overall material prices, there have been more significant shifts in individual material prices, both up and down.
Among indications of positive change, builders merchants’ sales rose by 18.4% over the second quarter of 2013 and by 4.4% compared to the previous year. The increase in house building output has also had an effect on the industry, with long lead-in times now noted for materials such as bricks and blockwork. GVA has noted local lead-in periods of 20 weeks or more for bricks.
Labour cost increases remain below inflation at around 2%, though this is likely to come under pressure as activity increases, as will issues surrounding recruitment and retention of staff. The incentives to increase the number of houses being built have already seen a shortage of bricklayers, with plastering trades likely to follow, which will also drive wages up.
Hewling added: “We are starting to see growth in construction output, with construction costs forecast to increase modestly in the short-term though more aggressively over the longer-term. Locally, we are seeing contractors’ prices begin to harden and lead-in times increase as construction activity increases. “
However, whilst confidence is returning, any increase – whether in activity or cost – is coming from a low base as construction has been hard-hit by the downturn.