Last year finished
on a brighter note than might have been expected for the industry with stronger
starts in some of the key sectors expected to show promise in 2018,
particularly civil engineering, industrial and private housing work.
Across the industry,
the Glenigan Index showed that starts in the three months to December rose 1
per cent on the period a year ago and were three per cent up on a seasonally
adjusted basis.
They were helped by
a 2 per cent rise in residential starts, largely due to an upturn in private
housing starts.
The picture has been
reflected in the new year trading statements from the larger private
housebuilders. Although share prices have been under pressure in the sector
over concerns that margins may come under pressure, the UK’s largest
housebuilder Persimmon recently reported that its legal completions in the
second half of 2017 rose 6% to 8,249 and that it now has 375 sites to support
sales over the Spring selling season. The firm has been adding to its regional
network, most recently opening new businesses in north Nottinghamshire and
Suffolk.
A mark of
Persimmon’s confidence has been its land acquisition programme – acquiring some
17,300 plots over the past year at over 80 locations – as part of a wider trend
for housebuilders to replenish their land banks. Barratt Developments also said
recently that the land market remains attractive and that it expects to approve
over 20,000 plot purchases during its 2018 full year.
The latest
Glenigan/HBF survey also suggests that the residential development pipeline
remains strong with approvals for 90,400 units in the third quarter, 6 per cent
on the previous three months and 9% on the period a year ago. Private sector
approvals rose 17% on a year ago and across the industry, schemes of ten or
more units accounted for 87% of the approved units.
Infrastructure work
is also gathering momentum. The Glenigan Index showed a 12% rise in underlying
civil engineering projects starts in the fourth quarter, although there was a
slowing in utilities work.
The longer term
outlook also remains good in the civils sector, particularly in roads. Over £11
billion of the £15 billion capital spend pledged for England’s roads and
motorways in the Government’s road investment strategy has now been committed.
Major Highways Agency schemes in the pipeline include the £349 million
‘all-lane running smart motorway’ upgrade to the M1 in the East Midlands, where
work is set to start in May 2018; the £150 million A19 Testos junction
improvement in the North East due to start next January and the £290 million
A30 Chiverton to Carland Cross upgrade, due to start in 2019/20.
The 17 per cent rise
in industrial building project starts seen in the fourth quarter in the
Glenigan Index suggests that the demand for logistics and warehousing space to
accommodate online sales is likely to help sustain the sector in 2018.
As well as large
warehouses near transport hubs, new logistics space within cities could also
offer potential. A recent review from Aviva Investors on the outlook for real
estate in 2018 points to the need for ‘last-mile delivery hubs in in inner-city
locations’ and suggests strong occupier demand and constraints on supply means
urban logistics assets are likely to see continued capital growth.
