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RFM Viewpoint: Delving into the Construction Industry August 2020

Property Expertise and Analysis

Each month RFM Group’s team of property experts explore and explain what is driving the UK property market, providing insider insights and industry knowledge.

Construction Industry reports released in August by IHS Markit and the Office of National Statistics (ONS) are showing a continued mixed forecast for the sector.  Whilst output is generally improving as a result of sites reopening in a Covid-secure manner, there are still concerns around sourcing materials and retaining workers.

Houses Chorley

Housebuiliding is July’s Growth Driver

Housebuilding is emerging as the main growth driver in July with activity increasing at a pace not seen since September 2014.  Following this, commercial building and civil engineering also showed growth month on month as contractors rush to catch up with delays caused by the lockdown period.

This view is supported by ONS which reported that construction output in June increased by 23.5% compared to May.  Most sectors saw record increases in June 2020 with only infrastructure, public other new work, and private industrial not showing record growth rates.

Anecdotal evidence from responders to both Business Impact of Coronavirus Survey (BICS) and the Monthly Business Survey (MBS) for construction and allied trades for ONS suggests a continued increase in activity in the construction sector, though not equally across all construction sectors and all UK regions. Social distancing measures meant where businesses were working on-premises and sites, the capacity and level of output were not at the same levels of work experienced before the coronavirus pandemic.

IHS Markit is reporting that new orders have now increased for two consecutive months driven by the easing of lockdown measures and a return to site for many companies.  However, according to ONS, this follows a quarter in which the lowest level of new orders was recorded since records began in 1964, with a total value of £6,173m.

Despite this, reports show that there was notable growth across both new work and repair and maintenance in June, however, both remain at a low level when compared to periods prior to March 2020.  ONS data shows that June saw record growth of 26%, which equates to £706m, in repair and maintenance across all areas.  Private housing repair and maintenance increased by 44% and non-housing by 18.7%.

Based on IHS Markit data, over 40% of the survey panel expect to continue to see a rise in construction output over the next 12 months with just under a third forecasting a fall.  Concerns remain around overall economic stability, including workforce management.  According to the latest data, IHS Markit reports that one in three survey respondents have reported a fall in employment.

Early Days in the Post-Covid Landscape for Construction Companies

It’s early days in the post-Covid landscape and construction companies are still working hard to understand how safety-related measures can be implemented on-site in a cost-effective manner that is conducive to both overall wellbeing and onsite productivity.  Alongside this, declining order books and uncertainty about future project commitments as well as an end to Covid-related government financial support means there are likely to be further job losses and restructuring efforts as companies try and ride out the current period of turmoil.

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