Third-quarter starts fall 27%

While data for the third quarter of 2022 is gloomy, September showed slight improvement on August. However, stronger headwinds may be ahead.

The analysis by Glenigan, a construction market data harvester, looks only at contracts with a value of less than £100m, to avoid the distorting effect of massive projects that have the effect of creating spikes (and hence crashes) in similar market studies. The numbers are also seasonally adjusted.

Civil engineering project-starts proved a bright spot for the construction industry in Q3 this year, rising 1% against the preceding quarter as well as 11% against the same period last year.

The value of residential project-starts fell by a third against the preceding three months and was 24% on Q3 2021. Social housing starts were down 13% against the preceding quarter and 36% on the year. Private housing starts were down 37% on Q2 of this year and 20% down on 2021.

Most non-residential building sectors also saw sharp declines in project-starts during Q3 2022, including education and health which respectively weakened by 37% and 39% against the preceding quarter. Education project-starts tumbled 46% on the previous year while health work starting on-site dropped 26%.

Office project-starts also faltered after a strong first half to 2022; Q3 saw a 30% fall against Q2 and a 37% drop compared to 2021.

Further echoing the downward trend, industrial (-13%) and retail (-14%) experienced relatively small declines against the preceding quarter but suffered falls of 16% and 27% respectively against the previous year.

Hotel & Leisure project-starts increased 13% compared to Q2 but remained 28% down on a year ago.

Civil engineering’s increase was down to utilities work starting on-site, up by 3% against the preceding quarter and 31% compared with the year before. The value of sub-£100m infrastructure starts were largely unchanged.

Regional outlook

While much of the UK experienced this decline in project starts, Northern Ireland bucked the trend, with project-starts increasing 31% against the preceding quarter to stand 51% up on a year ago.

Wales also performed relatively well, remaining unchanged on the preceding quarter to stand 7% up on a year ago.

But every region in England saw declines in project-starts. The northeast and the east of England regions experienced the greatest falls in project-starts against the preceding quarter, falling 38% and 36%, respectively. Both regions also dipped on the previous year, declining 30% and 29%. London starts in Q3 2022 were down 30% on Q2 and 45% down on Q3 2021.

Scotland saw project-starts fall by 26% against the preceding quarter to stand a fifth lower than a year ago.

Glenigan senior economist Rhys Gadsby said: “The rapid decline in project-starts of recent times has, encouragingly, stabilised over the three months to the end of September. The cost of imported construction materials and supplies, however, is projected to continue creeping up in the coming months due to a weakening pound and higher than expected interest rates.

“This will likely cause fresh challenges for the construction industry, suggesting that we’re not out of the woods yet. However, the industry can take hope from signs of individual vertical recovery, for instance civil engineering project-starts which posted a period of growth against last year.”

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