The Construction Products Association (CPA) has cut its growth forecast in the construction industry in 2019 from its original prediction of 0.3% growth to a 0.4% decline.
The CPA blamed the impact of continued Brexit uncertainty on investment, divergences in regional housing markets, concerns over major infrastructure delivery and difficulties faced by high street retailers.
Growth of 1.4% is forecast for 2020, largely driven by activity on major infrastructure projects but also supported by sharp increases in warehouses and ports activity.
The CPA said the effects of Brexit uncertainty adversely affect sectors that require high upfront initial investment such as commercial offices and industrial factories. Offices and factories output is forecast to fall 11% and 15% respectively in 2019, with further falls of 4% and 10% respectively in 2020.
Retail construction is forecast to fall 10% each year in 2019 and 2020, despite strong consumer spending. Investment in new retail space continues to be affected by the longer-term structural shift to online spending, the CPA said.
That shift means that industrial warehouses construction is forecast to rise. Construction output in the storage space and warehouses sector is forecast to rise by 15% in 2019 and 20% in 2020 to a record-high level of activity. The CPA predicted that demand in the ports sub-sector would also rise by 12% this year and 10% in 2020.
Private housing flat
Private house building activity is expected to remain flat, albeit at a high level, over the forecast period reflecting house builder caution over the slowdown in demand and falling prices in London, as well as parts of the South East and East, currently offset by buoyant housing markets of the North West, Yorkshire and the Midlands. In contrast, public housing starts are forecast to rise 2% in 2019 and 5% in 2020 supported by an increase in building for the affordable market.
The infrastructure sector is expected to experience the strongest growth rates across the forecast period, with growth of 9.3% forecast for 2019 and 9.7% for 2020 even with caution regarding government’s ability to deliver on major infrastructure projects such as Crossrail and HS2. Without this infrastructure growth, the construction industry would experience a 1.8% fall in 2019, followed by two years of stagnation, according the CPA’s forecasts.
Noble Francis, economics director at the CPA said: “It’s a currently a mixed picture for the construction industry and fortunes will depend highly on the sector and region in which firms are working. Those involved in major infrastructure projects, warehouses or ports are enjoying considerable growth but firms working on offices, retail and factories will be experiencing falls in construction activity. In private house building, activity is falling sharply in London, as well as parts of the South East and East but activity in the North West, Yorkshire and the Midlands is continuing to grow in line with house price inflation.
“The endless Brexit uncertainty hasn’t affected activity on smaller projects, where households have largely switched off from reading about Brexit and continue to spend whilst employment is high and real wages are rising. However, the Brexit uncertainty has had a large impact on sectors dependent upon high upfront investment for a long-term rate of return, especially where the investment is from international investors. It has so far hindered investment in new offices towers, factories and high-end residential and, given a 12-18 month lag between new orders and activity on the ground, output in these sectors will be adversely affected in 2019 and 2020 at the very least. Conversely, the uncertainty has provided a boost to demand in small sub-sectors such as warehouses and ports, which are both expected to enjoy double-digit growth in 2019 and 2020.
“Overall, construction output is expected to fall marginally this year before 1.4% growth next year but this growth is highly dependent on government’s delivery of infrastructure. The CPA has always been very cautious about factoring in major infrastructure projects into the forecasts given the government’s consistently poor track record, highlighted most recently on Crossrail and HS2 but even recent announcements of revised dates and costs appear optimistic. This lack of project certainty, combined with Brexit uncertainty, means that firms are focused on day-to-day business, risk aversion and constraining costs rather than investment in capacity and skills needed for growth.”
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