Construction output predicted to return to pre-Covid levels by 2022

Construction output will return to pre-Covid levels by 2022, with underlying starts 3% above 2019 levels, according to a recent report.

Glenigan said that in its Construction Industry Forecast 2021-2023, projects of over £100 million were removed to give a clearer view of the UK construction landscape.

As a result, it found that Covid had a significant impact on the UK construction sector, evidenced by a significant dip in output during 2020. However, the first half of 2021 saw a gradual rise towards pre-pandemic levels.

The value of underlying project starts (during the three months to May 2021) rose by 20%, and was 70% higher than when the UK was in the middle of the first national lockdown.

After this sharp initial upturn, a steadier progressive strengthening in project starts is anticipated over the forecast period. However, the recovery will not be evenly spread, with some regions and sectors performing better than others, reflecting a changing UK economic and social landscape.

Despite private housing showing a 70% rise against 2020 in the first five months of this year, the market is expected to cool over the coming months as the temporary reduction in stamp duty is partially withdrawn from July before ending in September.

Higher unemployment and economic uncertainty are subsequently expected to restrain property transactions and house price inflation during 2022 and 2023.

“We expect this to temper the rise in new activity, with project starts rising by 11% next year and 4% in 2023,” Glenigan said.

Public sector building has seen positive indicators of recovery, with social housing, health, schools and infrastructure project starts up on 2020.

Positively, school project starts are forecast to rise 5% in 2021 and 14% in 2022, driving a recovery in sector activity as local authorities tackle a shortage of secondary school places. Work to deliver further education facilities is also forecast to rebound over the next two years due to increased government investment. The value of project starts is forecast to climb 8% in 2021 and 22% in 2022.

The outlook for the health sector is also brightening, with promised increases in NHS capital funding expected to lift project starts over the forecast period. Starts are expected to consolidate after last year’s growth before rising by 14% in 2022 and 6% in 2023 as NHS trusts develop and implement their investment programmes.

Office starts are forecast to largely recover this year from the sharp decline experienced as a result of the pandemic, but are forecast to remain flat for the rest of the forecast period. A rise in refurbishment projects are expected to boost project-starts in 2021 as tenants and landlords adapt premises to accommodate changing working practices.

Across the sector, underlying starts fell 32% in 2020 but started 2021 strongly, with a 48% increase during the five months to May, against the previous year.

Overall, Glenigan anticipates the value of office project starts will largely recover from the fall experienced last year, before falling 3% in 2022 and increasing 1% in 2023.