Construction Output Now at 10% Below Pre-Pandemic Level with Slower Growth in August

MONTHLY CONSTRUCTION output growth slowed to 3.0% in August 2020, following record monthly growth of 21.8% in June 2020 and growth of 17.2% in July 2020.

August 2020’s construction output rose to £12,455 million. However, the level of construction output in August 2020 remains 10.8% (£1,509 million) below the February 2020 level.

The increase in new work (17.5%) in the three months to August 2020 was because of growth in all new work sectors apart from private industrial, which fell by 6.5%. The largest contributor to the growth was private new housing, which grew by a 34.9%.

Record RMI

The increase in repair and maintenance (20.3%) in the three months to August 2020 was because of record growth in all repair and maintenance sectors. The largest growth came from the private housing repair and maintenance sector, which grew by 35.6%.

Three-monthly figures

Construction output grew by a record 18.5% in the three months to August 2020 compared with the previous three-month period, following 10 consecutive periods of decline; this growth was driven by record three-month on three-month growth in both new work (17.5%) and repair and maintenance (20.3%).

INDUSTRY COMMENT

 

Government support

The Construction Products Association’s Economics Director, Professor Noble Francis,  said: “Construction output growth slowed sharply in August 2020, rising by only 3.0% compared July following on from July’s 17.2% growth. However this still represents further recovery and according to most firms in the industry this is likely to only be a short-term blip due to holidays and poor weather affecting on site activity. It’s important to note that activity varied considerably across the key sectors.

House Building
“Private house building is the largest construction sector and output in August 2020 rose by 12.0% compared with July but remained 10.4% lower than a year earlier. House builders remain buoyed by pent-up demand feeding through, rising house prices and strong forward sales. Government has also clearly signalled that it will sustain demand through the Stamp Duty holiday and the completions deadline extension for the current version of Help to Buy.

Commercial work
“Commercial output in August was 2.0% lower than in July and remained 22.0% lower than one year earlier. Activity is continuing to finish off offices, retail and leisure projects that were started pre-Covid-19. Interestingly, almost one-third (31%) of commercial construction is in London alone where construction work involves many trades in tight spaces, so social distancing and other safety measures are still hindering productivity on site. As a result of this, commercial towers in London that pre-Covid-19 were anticipated to finish in the Summer are now likely to finish in 2020 Q4 or 2021 Q1. Along with this hindrance to productivity, there remains the question of where demand and contracts for new offices, retail and leisure will come from given increased working from home and the risky, high upfront nature of investment required for commercial builds, which has a long-term rate of return.

Infrastructure
“Infrastructure output in August 2020 was 2.7% higher than in July and 1.3% higher than a year earlier. Infrastructure has a strong pipeline of projects and programmes across roads, rail, water & energy. with certainty of funding from clients, both public and regulated sector clients, that are keen to get on with activity. Social distancing and other safety measures are often easier to enact on large infrastructure sites as well, so prospects remain bright across the sector.

“Overall, total construction output continues grow but it is increasingly becoming reliant on government either directly through spending in infrastructure or indirectly through policy stimulus to boost housing. This places an extra responsibility on government to ensure it comes through with activity on the ground and not just announcements if we are to see construction recovery to continue and not stall in the next 12 months.”

Serious misfire

Gareth Belsham, Director of property consultancy and surveyors Naismiths, said: “The construction industry as a whole has been brought down to earth with an almighty bump, but housebuilding is booming.

“Overall the August data is a serious misfire. Even the most cautious predictions expected more from the month than this, and the recovery is starting to look less v-shaped and more r-shaped.

“But while things remain bleak in much of the commercial property sector, the impact of Britain’s house price boom is re-energising residential construction.

“Housebuilders are racing to respond to surging demand, and new residential work spiked by £310m in August, far more than all the other subsectors combined. By contrast, new industrial work is still a punishing 40.9% down on its pre-pandemic level as subsectors within the construction industry start to head in opposite directions.

“Few sectors are better at responding to boom and bust than construction, but the worry now is that as the momentum of the summer’s bounceback fades, uncertainty will chip away at business confidence, depressing tender prices and creating a more polarised construction industry.”

Shaky Foundations

Clive Docwra, Managing Director of property and construction agency McBains, said: “The construction industry will welcome these figures which show a fourth consecutive month of growth since the record low of April.  But after construction output picked up significantly in June and July, today’s figures – which show growth slowing to 3% – bear out just how shaky the foundations are for the industry at the current time.

“Output still remains well below its pre-pandemic levels and although private new housing work showed strong growth, new industrial and commercial work is still declining.

“The unpredictability around further lockdowns is causing private commercial investors to remain cautious of committing to new developments.  The government needs to ramp up its public infrastructure programme and speed up procurement to help tide the sector over while this fragility persists.”

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