Glenigan Index of construction starts to end of May 2023

The Glenigan Index of construction starts continues to report a poor performance to the end of May

• The value of underlying work starting on-site during the three months to May fell 16% against the preceding three-month period to stand 42% lower than a year ago.
• Residential construction-starts slipped back 10% on the preceding three months and 46% against the previous year.
• Non-residential project-starts fell by 19% against the preceding three months to stand 31% down on a year ago.
• Civil engineering work starting on-site declined 30% against the preceding three months, 50% down against the previous year.

The overall downward trend for construction starts continues into the June Glenigan Index, with project starts down 16% on the preceding three months. Affecting the entire construction sector, these figures present the latest disappointing results in a frustratingly protracted period of decline.

Despite stabilising somewhat compared with the steep decline seen during the first quarter of the year, start-levels are still floundering, remaining a significant 42% down on a year ago, as rising interest rates continue to keep public and private investors cautious about starting on new projects.

Furthermore, material price inflation, labour shortages and sweeping regulatory changes are holding back shovels from being committed to soil. For example, in the residential sector, the upcoming legal-enforcement of Part L on 27^th June and the promise of tighter building safety restrictions has likely resulted in an activity-dip as many implement protocol to stay compliant and bring existing stock up to required standard.

Almost at half way through year, it’s looking increasingly unlikely that consistent recovery will be observed until at least Q.4 2023 or, more likely Q.1/Q.2 2024.

Commenting on the findings, Glenigan’s Economic Director, Allan Wilen, says, “Despite some stabilisation in the sharp falls in project-starts seen in Q.1 2023, the industry continues to suffer a squeeze in activity with starts remaining significantly down on a year ago. The sector looks to be in for a challenging period, with commercial starts falling back as skyrocketing interest rates and a weak economic outlook continue to dampen investor confidence.

“Private housing also looks to be hard hit, as housebuilders focus development on existing sites in response to a reduction in activity across the wider housing market. The pick-up in industrial starts is the silver lining in a distinctly overcast Index, with the rising demand for logistics space expected to drive sector activity in the medium term. On the flipside, it’s especially disappointing to see civil engineering starts hit a wall following a strong burst of activity in recent months, with marked declines in both infrastructure and utilities work.”

Taking a closer look at sector verticals and UK regions…

Sector Analysis – Residential

Residential construction experienced overall decline in the three months to May as starts fell 10% to stand 46% lower than a year ago.

Private housing fell back 13% against the preceding three months and registered particularly weak performance against the previous year, finishing 55% down compared with the previous year.

Social housing’s fall was less severe, with work starting on site falling a modest 4% against the previous three-month period, down 1% on 2022 levels.

Sector Analysis – Non-Residential

The value of starts across non-residential sectors fell by 19% during the three months to May, slipping back a third (-31%) on 2022 figures.

Overall performance was a mixed bag, with education the only sector vertical to experience growth (9%) on the previous year, yet failed to match this increase against the preceding three month period, declining 18%.

Industrial project-starts were also mixed, with the value of project-starts increasing 9% during the three months to May but 20% lower on 2022 levels.

Retail performance was especially poor, with project-starts weakening 29% against the preceding three months and 48% against the previous year. It was a similar story for offices, with the value of underlying project-starts falling 20% against the preceding three months to stand 48% down on a year ago.

Health starts also slipped back sharply, declining 20% against the preceding three months to stand 52% down on 2022 figures.

Hotel & leisure and community & amenity also decreased 34% and 54% against the preceding three months, to stand 10% and 54% down on the previous year, respectively.

Civils work starting on-site dropped 30% against the preceding three months to stand 50% down on a year ago. Infrastructure starts dropped 26% against the preceding three-month period, down 56% on the previous year’s figures.

Faltering on strong activity in previous months, civils general decline can also partly be attributed to a weakening in utilities starts, declining by 35% against the preceding three months to stand 37% down against last year’s results.

Regional Analysis

Regional performance was poor across most of the UK, with project-starts weakening during the three months to May.

The East of England was the only region to post growth on the preceding three-month period, with project-starts increasing 19%, but remaining 39% behind 2022 levels.

Wales suffered the heaviest fall, declining 56% against the preceding three months to stand 43% down on a year ago.

It was a similar story in Yorkshire & the Humber, with the value of project-starts decreasing 31% against the preceding three months and remaining significantly down (-52%) on the previous year.

Project-starts in the North East experienced a fall against both the preceding three months (-27%) and previous year (-26%).

London and the South West both weakened against the preceding three months, falling back 1% and 12%, respectively. Both regions were down on the previous year, remaining 20% and 46% lower than a year ago.

Scotland was also down on both the preceding three months (-12%) and the previous year (-43%).

Northern Ireland, the East Midlands, West Midlands, South East and the North West all crashed compared to both the preceding three months and previous year.