Construction output

What to expect from the construction market in 2018



The construction market faces a tough year, according to one development finance lender.

The latest construction output report by IHS Markit/CIPS Construction PMI found that construction companies reported a subdued degree of optimism regarding business outlook for the next 12 months.

The balance of companies expecting a rise in output levels remained among the weakest on record since mid-2013, which survey respondents mainly linked to worries about the wider UK economic outlook.

“Construction firms indicated that longer-term business confidence is still relatively subdued, largely reflecting concerns about the domestic economic outlook,” said Tim Moore, associate director at IHS Markit and the author of the IHS Markit/CIPS Construction PMI.

“Exactly 37% of the survey panel forecast a rise in construction activity over the course of 2018, while around 11% anticipate a reduction.”

However, CBRE’s 2018 market outlook report expected to see the UK property sector perform solidly, despite the ongoing economic and political unknowns.

“While some property sectors will see extremely patchy growth performance, the rise and rise of industrials and logistics looks likely to continue, and the ‘beds sectors’ like hotels, built-to-rent and healthcare are also set to grow strongly,” said Miles Gibson, head of UK research at CBRE.

“While significant risks remain – from reduced consumer spending power, changes to US interest rates and the Brexit denouement – we anticipate robust investment volumes in the property sector in 2018.”

Construction industry predictions for 2018

“Judging by the increased number of enquiries for mezzanine finance that we have seen over the past few months, we are confident that 2018 will show robust growth in residential development construction,” said Brian Markovitz, director of Argyll Property Partners.

“The enquiries received by Argyll are from all parts of the UK and there does seem to be a broad-based consensus that the coming year will be positive for construction, particularly with the impetus of the support promised by government.”

During the Autumn Budget, the chancellor of the exchequer Philip Hammond announced that the government was committing £44bn to housebuilding.

However, Katy Katani, associate director at Zorin Finance, believed the construction industry faced a tough 2018 as prospects for construction were negatively affected by slowing UK economic growth.

“In 2017, the value of underlying construction projects declined due to the continued political and economic uncertainty, delays to public sector projects and a weakening of the housing market.”

Rico Wojtulewicz, policy adviser at the Home Builders Federation, added: “Construction remains an inconsistent performer.

“With profit margins remaining low and construction policy favouring larger companies, our regionally investing SMEs feel growth opportunities are out of reach.”

Paul Riddell, head of marketing and communications at Lendy, expected high street banks to remain cautious of lending to the construction industry in 2018.

“The problem is that when the high street banks get nervous about a sector, they tend to tar everyone in that sector with the same brush, no matter how different the business models are across that set of businesses.

 "We have seen some promises of improved levels of lending for development finance from challenger banks, but this is a drop in the ocean compared to the lending that the big banks used to undertake.

"All of this points to the continuing growth of the alternative finance sector, as it continues to fill the gap left by the mainstream banks."

Despite the slowdown in the general housing market, Katy felt housebuilders were continuing to increase supply.

“Currently, more than a third of new housebuilding is being sustained by the government's Help to Buy as well as affordable housing schemes.

“On a positive note, overall construction activity is forecast to stabilise in 2018, as construction clients adapt their investment plans to the changing political and economic environment.

“However, it is predicted that any growth at all will be reliant on government’s delivery of infrastructure projects such as HS2 and Northern Powerhouse, especially in regions such as Manchester, Birmingham, Leeds etc.”

 


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