The rise in orders in the year to March masks variation across the sectors

Noble Francis

The first quarter of 2017 started off quite brightly for construction. Monthly indices covering activity on the ground have shown steady growth and activity is higher than six months ago, while cost rises and low margins are key issues currently.
Forward-looking indicators are also quite positive. The CPA/Barbour ABI contract awards index in March remained broadly flat compared with February and was 14% higher than a very subdued March 2016.
However, the rise in orders in the year to March masks mixed fortunes across the sectors. It will be essential for firms to look at the sectors most relevant to them, rather than the figures for construction overall. Contract awards in private housing, offices, hotels, leisure and factories rose over the past year. Conversely, contract awards in March were poor across publicly-funded housing, education and health. In addition, contract awards fell in private sectors such as commercial retail and industrial warehouses.

Commercial retail sector index: Left on the shelf

The fortunes of retail construction remain poor. The CPA/Barbour ABI retail contract awards in March fell 22% compared with a year ago. Although consumer spending has continued to rise, it has increasingly been moving away from the high street and towards the internet. As rising inflation this year hits consumers in the pocket, not only are they likely to spend less but it is also expected to drive spending further online. Falls in activity are likely to be partially offset by two large retail projects currently in the pipeline worth £1.4bn each - the Croydon Partnership and Brent Cross Extension. The Croydon Partnership design and preparation works are underway. Full construction is expected from 2018 after many delays. The Brent Cross extension is expected to double the size of the shopping centre and enabling works should begin this year. Main works should get on the ground in 2018. Activity on both projects is expected to peak in 2019 and complete in 2021. Overall, declines in retail construction output of 4% in 2017 and 2% in 2018 are forecast in the retail sector before output returns to growth with a 2% rise in 2019.

Noble Francis is economics director at the Construction Products Association

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