Rise in private housing steadies construction starts
Published: 23 November, 2009
UK: The latest Glenigan Index has been boosted by an improved flow of private housing projects starting on site in recent months.
The strength of the turnaround in the private housing sector, combined with increases in public sector and civil engineering work, limited the year-on-year fall in the Index for October to just 4% and has prompted an upward revision to the Index for August and September.
This is in marked contrast to the sharp falls in project starts seen during the first half of the year.
While poor private sector activity, including a renewed weakening in private housing projects, is forecast to dampen construction starts near term, the flow of new work is forecast to improve during 2010.
The strengthening in public sector building and civil engineering projects has provided a particular boost to the construction industry in Scotland and Wales, while the East Midlands and the South West and the North West of England have particularly benefited from the rise in private housing schemes starting on site during the three months to October.
Developers continue to prioritise completing and securing sales at existing sites. The increased flow of new project starts reflects housebuilders' growing confidence that market conditions will improve during 2010. The steadier performance by the private housing sector, combined with continued strength in social housing starts as promised government funding has fed through, secured a 14% rise in the Residential Index for October.
The non-residential Index for October was 18% down on a year ago as an increase in government-funded work only partially compensated for the scarcity of private sector work.
The decline in commercial and industrial work is being driven by the weak rental and capital values and rising vacancy rates which continue to deter developers.
The rise in public sector work during October has been led by an increase in health and community and amenity projects, while flow of education projects has weakened after the earlier surge work seen since the start of the current financial year.
The civil engineering Index during September was 13% up on a year ago. The value of underlying projects starts was boosted by a sharp rise in infrastructure work, while the flow of utilities projects remains firm, if slightly down on a strong corresponding period a year ago.
The civil engineering sector is benefiting from several major schemes, such as the £6.3bn M25 widening scheme that started on site during the summer and will continue to contribute to sector activity during 2010.
A weak private sector is expected to remain a drag on project starts, including a renewed weakening in private housing projects. However, the flow of private sector work is forecast to improve during 2010.
In contrast, the recent pick-up in public sector starts is set to lose momentum during the closing months of 2009, while government funding cuts will restrict the flow of public sector schemes over the medium term.
A gradual recovery in new residential projects is forecast over the course of 2010 as market conditions further improve.