Construction activity on the ground rose marginally in October after September’s sharp fall

Construction activity on the ground rose marginally in October after September’s sharp fall, according Markit/CIPS. The overall trend for construction activity remained downward, however, except in case of housing. The CPA/Barbour ABI contract awards index fell to 134, 1% down on September and 7% on a year ago.

Of the main construction sectors, housebuilding activity continued to rise as it is underpinned by government’s Help to Buy policy, for which another £10bn was announced last month. However, in London, where Help to Buy has been less used than in the regions, affordability remains a key issue, and there is a rising oversupply in prime central London housing. As a result, private housing contracts have fallen recently. In addition, the rise in housebuilding activity has been offset by falls in commercial offices and retail, issues that have been exacerbated by rising labour and materials costs for contractors, adversely affecting margins. 

Commercial office sector index: Brexit uncertainty is blocking the offices pipeline

Commercial office activity on site remains high, but as projects have finished this year they have not been replaced at the same rate. Forward indicators have been looking gloomy for a while now, and new orders for commercial offices fell by 24% in the first half of 2017. The CPA/Barbour ABI commercial offices contract awards index in October was 4% lower than in September and 18% lower than a year ago, which does not bode well for 2018 and 2019.

Office demand remains high from the technology, media and telecoms sector, and demand for flexible space for co-working is growing. But this is not enough to offset the sharp fall in demand for high-profile office space, particularly in London, from the finance sector. As this is highly dependent on international investment, it is being adversely affected by Brexit-related uncertainty. Apart from a few minor moves, so far we have not seen banks shifting offices away from London to other European cities, but the uncertainty has meant investment plans for London are on hold. Unless the government provides some clarity soon, we will see major banks move people elsewhere in the EU next year. 

Noble Francis is economics director at the Construction Products Association

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