Commercial growth engine stalls
The Glenigan Index covering the first quarter of 2015 saw the value of construction starts unchanged on a year earlier. The value of non-residential building starts fell by a mild 1%, the first drop since July 2013, as new commercial activity weakened.
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Chart 1: Glenigan Index
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Across the industry new activity has been muted during the first quarter, with residential starts unchanged on a year earlier, non-residential starts dipping by 1% and civil engineering starts up by a modest 3%. By contrast the first quarter of 2014 saw starts rise by 22% overall fuelled by residential starts growing by 33% and non-residential starts rising by 20%.
This previous upturn across the housing and non-housing sectors was driven by the private sector. Resurging confidence crystallised into rising investment into projects across the commercial and industrial sectors.
However following the initial surge of recovery, investment has since shown signs of easing. Official statistics estimated declines in business investment in both the third and fourth quarters of last year, and Glenigan data hints at a slowing in construction specific investment over the last six months. Having grown consistently and strongly since 2013 Q3, the pace of growth in non-residential dropped from 26% in the third quarter of last year to 5% during the final quarter. The rate of change has since turned negative, with a 1% decline in the first quarter of 2015.
With public sector work having been largely flat over the period, it was commercial and industrial starts that fuelled growth, and these same sectors are now dragging growth into negative territory. An expansion in hotel and leisure starts was insufficient to offset falls in industrial, office and retail starts over the last three months. That starts fell by just 1% is due to a strong expansion in education starts, which more than offset continued falls in health and community and amenity work.
Elsewhere, residential starts were flat, though this comparison is against a particularly strong base; starts rose by a third during the same period of 2014. The underlying value of civil engineering schemes rose by a modest 3%. Underlying infrastructure starts declined, offsetting a rise in utilities work.
An East vs West split emerged in the fortunes of English regions during the first quarter of the year. Despite the UK as a whole seeing no improvement in starts, the North East, down through Yorkshire and Humber, East Midlands, East and South East of England all saw marked rises relative to a year earlier. By contrast the South West, West Midlands and North West of England saw starts drop, as did the capital with a decline of 13% compared to a year earlier. Amongst the other UK nations prospects similarly weakened, with starts down on a year earlier in Wales and Scotland and up by just 1% in Northern Ireland.
Table 1: Glenigan Indices (large* projects up to £100 million)
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Glenigan Index |
Residential |
Non-residential |
Civil engineering |
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Index |
% Change |
Index |
% Change |
Index |
% Change |
Index |
% Change |
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Mar-14 |
111.2 |
22% |
114 |
33% |
102 |
20% |
143 |
4% |
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Apr-14 |
110.3 |
15% |
106 |
18% |
103 |
17% |
155 |
4% |
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May-14 |
113.9 |
18% |
108 |
8% |
103 |
20% |
180 |
34% |
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Jun-14 |
118.8 |
15% |
115 |
12% |
109 |
12% |
173 |
29% |
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Jul-14 |
121.7 |
13% |
125 |
10% |
109 |
14% |
166 |
23% |
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Aug-14 |
125.3 |
13% |
124 |
8% |
121 |
21% |
151 |
0% |
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Sep-14 |
121.5 |
8% |
115 |
-9% |
122 |
26% |
138 |
0% |
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Oct-14 |
113.7 |
6% |
107 |
-9% |
116 |
23% |
124 |
-3% |
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Nov-14 |
108.8 |
-2% |
111 |
-11% |
105 |
8% |
119 |
-11% |
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Dec-14 |
98.6 |
0% |
108 |
1% |
89 |
4% |
113 |
-17% |
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Jan-15 |
105.2 |
0% |
113 |
1% |
96 |
5% |
119 |
-17% |
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Feb-15 |
104.4 |
6% |
113 |
10% |
93 |
4% |
127 |
4% |
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Mar-15 |
111.4 |
0% |
114 |
0% |
102 |
-1% |
146 |
3% |
Note: *, >£250k commercial or civil projects, ≥10 units residential
r – Revised, p – Provisional. Percentage change is against the same period of previous year.
Source: Glenigan
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Chart 3: Glenigan Index Forecast
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Though the value of work starting on site has remained flat during 2015 so far, there has been a renewed surge in projects receiving detailed planning approval.
During 2014 growth in the underlying value of detailed planning approvals, at 6%, lagged the 10% growth in project starts. However during the first two months of 2015 approvals were up by 36% compared to a year earlier, with a marked 54% expansion in non-residential approvals.
The overhang of last year’s relatively muted rise in approvals, coupled with some private sector clients potentially pursuing a ‘wait-and-see’ approach during the run up to the general election, may keep starts subdued into the second quarter. However this replenishing bank of prospective projects with detailed permissions bodes well for growth during the second half of this year, especially if a credible government emerges quickly from the aftermath of the election.