Construction Growth Forecast Despite Disruption Battles

Construction Growth Forecast 2021-2023 - cranes against sunset skyline

DESPITE A CHALLENGING year, construction looks set for growth with the value of construction starts (projects with a construction value of under £100m) are set to rise from £54.2bn in 2021 to £61bn by 2023.

The increase is forecast at 11% higher than 2020 figures and up 3% on 2019 levels. That’s according to Glenigan in the Construction Industry Forecast 2021-2023.

Construction Growth

Severe disruption by a dampened economy and post-Brexit has tempered the pace of recovery.

Yet the sector’s rebound is still on track, with recovery being driven by strong growth in industrial projects, increases in private and social residential activity and a delayed recovery for the Hotel and Leisure sector. The Government’s ‘levelling up’ agenda is also set to spur new development activity, particularly in the Midlands and north of England.

Construction Growth graph
Private Housing Set to Moderate

Following a ‘mini-boom’ of the housing market after the lift of the first national lockdown, property transactions and house prices rose sharply, driving demand for larger properties in market town and semi-rural locations. A temporary reduction on stamp duty rates provided further catalyst.

Private Residential Housing Value Forecast graph

Yet despite weak household earnings, tax increases and higher mortgages taking their toll and moderating growth over the next 2 years, a 6% and 5% increase is expected for private residential starts in 2022 and 2023, respectively.

Major Growth for Industrial

A success story of 2021 has been the Industrial sector. Following a sharp fall in project starts in 2020, with a value drop of nearly a third (29%) against 2019 figures, project-starts have recovered greatly in 2021, with the value forecast to increase by 33%. This trend is set to continue into 2022, with project-start values surpassing pre-pandemic figures and increasing by nearly a quarter (24%).

Industrial Project Starts

  2019 2020 2021f 2022f 2023f
£million 5,036 3,568 4,743 5,894 6,261
Growth 5% -29% 33% 24% 6%

Source: Glenigan

A continued surge in the warehousing and logistics sub-sector is also predicted, having been the strongest performing sector since 2018. Booming online sales have intensified the demand for logistics space.

Following anticipated growth of (49%) in 2021 against the previous year, warehousing and logistics work starting on-site is set to increase by a further 34% in 2022, followed by 2% in 2023.

Rebound for Hotel and Leisure

Having been hit particularly hard by the pandemic with repercussions still being felt throughout 2021, Hotel and Leisure project starts are estimated to have made just an 8% recovery this year. However, with the impending revival of the sector, investor confidence is expected to rise, leading to improvements of a quarter (25%) in 2022 and 17% in 2023.

Sustainability Boosts Civil Engineering

Steady growth in project-starts for civil engineering is predicted throughout the forecast period. The Government’s drive to Net Zero has led to an increase in renewable energy projects, whilst major projects have helped lift the sector’s overall workload.

Value of civil engineering forecast graph

Despite project-starts in 2021 remaining lower than anticipated with the value only forecast to increase 3% this year, a string of projects including the second Road Investment Strategy (RIS2), which will allocate £24bn to build new road capacity as well as improve the quality of existing roads, is approaching the halfway stage. HS2 is also making a significant and crucial contribution to sector activity as work on Phase 1 continues.

Civil Engineering Project Starts

  2019 2020 2021f 2022 2023
£million 7,586 6,423 6,627 6,787 7,082
Growth 20% -15% 3% 2% 4%

Source: Glenigan

Glenigan Economic Director Allan Wilen said: “2021 has been a tumultuous year for trading across the wider UK economy, not just in the construction sector. However, the Forecast has shown just how resilient the industry is, with growth scheduled across many different sectors.

“While increased Government funding in line with the ‘levelling up’ agenda has been welcomed, the coming years will no doubt present their own challenges. Contractors and sub-contractors who seek to identify and mitigate any potential interruption to product supply will be best placed, especially as material and labour shortages are likely to increase cost pressures.

“But as we’ve seen time and time again, where there’s a will, there’s a way and as they stand, the figures look optimistic that growth for the sector can continue.”

>>Read more construction forecasts in the news