House builders optimistic about year ahead but commercial developers less so

The construction industry in the UK overall is its least optimistic for five years amid fears over Brexit and an economic slowdown, but house builders are more optimistic, new research shows.

Some building firms won the most work for several months in December but the number of companies expecting a rise in output levels over the next 12 months was the weakest recorded since the middle of 2013, according to the Markit/Cips UK construction index.

However, the dip in the PMI appears to be largely due to falling levels of commercial work and this is offset by a growing numbers of house building projects. Indeed, the prospect of greater workloads led firms to take on staff and buy materials at the fastest pace in two years over December.

According to Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, support from the Government should keep house building going in 2018, although he warned construction output overall was likely to be flat.

Overall just over a third of construction firms in the survey see an increase in activity over the course of 2018, while 11% anticipate a reduction. They say they are facing strong cost pressures as a result of the weak pound and Brexit driving up the cost of importing materials.

It should not be a surprise that Brexit is having an effect on commercial and industrial output, according to Steve Mansour, chief executive officer of construction insurance specialist CRL.

He believes that when it comes to house building developers need to provide what is wanted by buyers. ‘Currently, we are seeing developers build multitudes of three bed family homes, in a bid to solve the ever evolving housing shortage. There has to be a shift this year to fit with demand, which will create more choice in the market, and respond to consumer need,’ he said.

‘Developers must start recognising this if they are to stay ahead of the game. This shouldn’t mean increased property prices, it should mean a welcome change, one of bespoke or enhanced product offerings for consumers,’ he explained.

‘Technological advancements have already improved construction and we expect this to expand this year, through processes such as modular building and 3D printing. Expect more virtual reality and augmented reality use, with potential buyers visiting the shell of a virtual house, allowing them to design and configure a truly unique home. This will mean a fit for purpose property, which will hopefully result in purchasers staying in their homes for longer, he pointed out.

He wants it to be a year for entrepreneurialism and further innovation in the construction industry. ‘Overall, the outlook for the industry is bright, but it will have its challenges. The best thing we can do is stay knowledgeable and open to new ideas and ways of working,’ he added.

Blane Perrotton, managing director of national property consultancy and surveyors Naismiths, pointed out that while a loss of momentum in commercial property and infrastructure work dragged down both output and sentiment in the latter part of the 2017, Britain’s house builders continue to buck the trend, posting a sixteenth straight rise in monthly output and injecting a defiant note into an industry which has been hit hard by rising material costs and had its confidence eroded by months of Brexit negotiations.

‘There are some bright spots. Construction firms’ order books are far from empty and on the front line we’re seeing consistent appetite among developers to convert office buildings into residential units under the extended and popular Permitted Development Rights,’ he explained.

‘It’s too early for the Chancellor’s housebuilding stimulus measures to have filtered through in a significant way, but consistent demand, both from developers and would-be home owners, is ensuring the residential sector is continuing to function as it should,’ he pointed out.

‘The picture is far less clear on the commercial property front though, with demand being squeezed as larger companies activate Brexit contingency plans and smaller firms mothball plans to scale up their premises. If the coming months fail to deliver greater clarity on what the real impact of Brexit might be, we should expect the commercial sector to continue its stuttering progress,’ he concluded.

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