The industrial
sector took a hammering last year but has been one of the first areas to
benefit from an upturn in activity and that is expected to continue.
In the wake of the
Brexit vote, 2016, underlying project starts in the industrial sector crashed
26% amidst general uncertainty in the overall economy but confidence has
swiftly returned.
Glenigan economics
director Allan Wilen comments: “We expect the industrial construction sector to
benefit from renewed investment in warehousing and logistics space. The demand
for such facilities is being driven by long-term structural change in the retail
sector.“
This rise in online
sales drove earlier demand in 2014 and 2015 and, despite last year’s dip, that
appetite remains with Amazon set to build a 2.2 million square foot ‘mega-shed’
in Bristol. This summer, Savills suggested that the ‘positive sentiment aimed
at the UK logistics sector has shown little sign of abating’ with investment
volumes of £2.6 billion nearly £1 billion higher than for the same period in
2016 and 150% higher than the long-term average.
Much of this
investment came in the Midlands and has helped specialist contractors working
in the industrial sector working in this region, such as Winvic.
However, some
indications of uncertainty have emerged.
In its Q1 trade
survey, the Construction Products Association highlighted weak activity in the
industrial and commercial sectors as major factors in dragging down overall
results. This was echoed in the CIPS/Markit update for July 2017.
At a wider level,
overall retail sales suffered their biggest drop for seven years in the first
quarter of 2017 according to the ONS but this knock-on effect for the
industrial sector could be positive. “The drop in the first quarter of this
year may actually accentuate the demand for warehouse accommodation as
consumers’ increasing shop on-line or at smaller stores more reliant on
warehouse hubs in an effort to seek out better value,” added Mr Wilen.
The continued
weakness of the pound is also benefitting.
A survey in
September from manufacturing organisation EEF of 416 companies by the EEF found
an improving Eurozone economy was leading to more export orders in the three
months to September 2017. EEF chief economist Lee Hopley said: “Exporting
companies are capitalising on growth in the world economy – Europe in
particular. That’s encouraging buyers of manufactured goods everywhere, and UK
is helping those supply chains, helped by the weak pound.”
Increased exports
are expected to lead to greater investment and Glenigan’s research shows that
the planning pipeline remains strong.
The underlying value
of industrial project approvals rose 11% in the 12 months to August 2017
against the same period a year earlier and Glenigan expects starts to rebound
strongly this year with a rise of 18% forecast.
Mr Wilen concludes:
“After the initial disruption following the vote there are now signs that
investor confidence has improved. A recent rise in project starts since the
start of the year suggests that investors are now pressing on with some the
delayed projects and we forecasting a progressive recovery in sector starts
over the next two years.”
