March sees stabilisation in monthly construction contract awards as general election approaches

Noble Francis

March saw a stabilisation in monthly construction contract awards as we rapidly approach the general election in May. The latest CPA/Barbour ABI index registered 130, broadly similar to February’s figure but still 6% higher than a year earlier. The annual increase in contract awards bodes well for construction over the next 18 months and, after May, if a stable government is formed reasonably quickly, we would expect the monthly increases to also pick up.

There was significant annual growth in construction orders in private housing, offices, factories and warehouses construction. However, this growth was partially offset by falls in sectors such as public housing, retail and leisure. In public housing, activity on the ground under the Affordable Housing Programme is likely to have peaked in 2014. Falls in contract awards were also seen in retail and leisure, despite rising real wages, as major supermarket chains close larger shops.

Commercial offices - March

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Commercial offices sector index

Capital performance

Commercial offices is a sector that continues to go from strength to strength. The CPA/Barbour ABI offices index was 125 in March, 9% higher than a year earlier. Given the lag between orders and activity on the ground, this means we should see significant increases in offices output over the next two years.

The CPA’s latest forecasts expect offices output to rise 10% this year and a further 7% next year.

Output in the past two years has primarily been driven by major projects in London. However, adding to the optimism, 2015 and 2016 should see significant growth both in London but also in cities outside the capital. Within London, the £400m BBC TV Centre redevelopment and almost 2 million ft2 of office space at 22 Bishopsgate, formerly known as The Pinnacle, will boost activity going forward. In Birmingham, work will ramp up on the £500m redevelopment of Paradise Circus and will be boosted further by 225,000ft2 of offices space in Colmore Row, which is expected on site this year. In Manchester, four major projects totalling 600,000ft2 of new offices space will be under construction over next 18 months.

Noble Francis is economics director at the Construction Products Association