Will There Be An Explosion Of Construction In 2022?
I was asked by a potential client who is new to the construction business what I thought the outlook for 2022 was, and whether there will be an explosion of new construction in 2022. Well, I don’t have a crystal ball however, reading the online construction reviews of 2021 and economic outlooks for 2022 the picture is quite positive.
The UK economy (GDP) grew by 1.3% during the third quarter of 2021 according to the latest official figures from the ONS. According to the CIPS (Chartered Institute of Procurement & Supply) rising supply chain disruption, staff shortages and declining intakes of new export work constrained manufacturing output although there was a strengthening in domestic demand. Service sector output, on the other hand, rose by 1.6% during the third quarter according to ONS, with the CIPS also reporting a sharp acceleration in service sector growth driven by increases in domestic and overseas new orders.
According to Glenigan, looking at the overall picture for 2021, construction activity recovered strongly during the first quarter as the vaccine rollout and progressive unlocking of the economy started to rebuild confidence, and contractors started pandemic-delayed projects. After this sharp initial surge of delayed projects, the flow of work moderated during the rest of 2021, due in part to material supply disruptions.
Looking ahead then to 2022 and 2023, the value of underlying starts (projects with a construction value of less than £100 million) during 2021 is expected to be 11% up on last year although 8% behind pre-pandemic levels seen in 2019, and they expect further growth over the next two years to lift the value of underlying starts to total £61 billion by 2023, 3% above 2019 levels. The recovery will be driven by strong growth in health and industrial projects, increases in private and social residential activity, and a belated recovery in the hotel and leisure sector. Regionally, growth will be strongest across the Midlands and the north of England, as the Government’s ‘leveling-up’ agenda provides a spur to new development activity.
The Construction Production Association (CPA) provides a similar picture, with construction output expected to rise by 14% by the end of 2021 and then by a further 6.3% in 2022. Their prediction is based on private housebuilding and infrastructure being the two areas acting as key drivers in construction growth for 2021 and 2022.
Noble Francis, Economics Director, CPA, said: “The key constraint to our forecasts remains the cost and availability of imported products and skilled labour. The sharp recovery for both UK construction and in places such as the US has led to sharp cost increases and extended lead times for some key products such as paints and varnishes, timber, roofing materials, copper, and steel. This is of concern particularly for SMEs, which account for 86% of construction employment.” Mr Noble added that SMEs tend to purchase on the day at builders’ merchants; this is in contrast to bigger contractors and housebuilders, who tend to buy in advance as they have a pipeline of work.
Major housebuilders are continuing to report demand in the housing market, and house price inflation continues to be robust. The National Building Society’s index showed a year-on-year house price rise of 10.4% in December, with a month-on-month decrease of 1%. The average UK house price rose by nearly £24,000 during 2021, the biggest increase ever recorded in a single year in cash terms. This, as well as the way people are working due to the pandemic, have impacted private housing repairs in a positive manner, with maintenance and improvements being the quickest sector to recover.
Major projects such as the Hinkley Point C nuclear power station, the Thames Tideway tunnel, and the HS2 rail project are central to strong output in the infrastructure sector. The CPA has revised its infrastructure forecast for 2021 from 29% percent to 23.4% growth but has upwardly raised its forecast for 2022 from 5.9% to 9.7% owing to further delays and cost overruns on major projects.
Overall, a bright picture for 2022 and 2023.
If you have any further questions, don't hesitate to contact me by email at andrew.coney@raffingers.co.uk or click here to get in touch.