WALES
Material and labour costs are still high within the construction sector in Wales. Despite build cost inflation easing, it is still apparent that overall output is contracting. Further reductions in interest rates are eagerly awaited to boost the market’s confidence.
The new UK government appears to have fast-tracked some schemes and has ambitious plans for new housing, which will help to increase market activity. Unlike the residential sector, the new government has not yet specifically targeted education in terms of investment in new or existing facilities, ultimately causing some uncertainty regarding construction pipeline for this sector.
MARKET CONDITIONS & PIPELINE
Strong level of market activity across multiple sectors in Wales
Sentiment in the construction sector in Wales remains upbeat. There is a strong level of development taking place across the region and across multiple sectors.
The market is hopeful for positive change following the appointment of a new First Minister of Wales and the election of a new UK government. The preceding political uncertainty impacted decisions on spending, contributing to a fall in project starts this quarter.
Planning is slow due to different constraints, such as the requirement for drainage proposals for all new developments to be approved by the SuDS (Sustainable Urban Drainage Systems) Approving Body. Clients are still expecting projects to proceed but are aware of the planning challenges currently at large.
An additional challenge facing the market is the ongoing labour shortage. At the recent Construction Summit in Llandudno Junction, Cabinet Secretary for the Economy, Energy and Welsh Language, Jeremy Miles, said Wales would need an additional 11,000 construction workers to sustain its growing economy.
With a busy market and strong work pipeline, the sector also needs several main contractors to replace those Wales has lost. The reduction in interest rates was a much-needed relief for contractors. If these continue to fall, then margins generally should start to ease, allowing projects to become more viable.
RLB Market Activity Cycle
The RLB Market Activity Cycle is a representation of the development activity cycle for the construction industry.
RLB considers 10 sectors to be representative of the construction industry as a whole. Each sector is assessed as to which of three activity level zones – peak, mid or trough – best represents the current status of the sector within the cycle. This assessment is then refined by identifying whether the current status is in a growth phase or a decline phase.
The subjective current performance of sectors is identified by ascribing one of the coloured arrows (shown in the legend of the chart) to each sector. NB: In this analysis, sectors are not individually weighted.
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Market sector activity analysis: Wales
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of a region enables the calculation of a regional representation of percentage of sectors in each phase of the cycle at a point in time.
Market sector activity analysis: United Kingdom
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of multiple regions enables the calculation of a national representation of percentage of sectors in each phase of the cycle at a point in time.
TENDER PRICES
Price stability dependent on pipeline and further interest rate cuts
Overall tender prices have been consistent across the board, with little change since the last quarter. Main contractors are still bidding for work in Wales but are being more selective over the projects they bid for, with some preferring new build schemes over refurbishments.
There is confidence the new UK government will direct more public investment to the housing and education sectors, leading to an increase in construction projects within these sectors. Coupled with anticipated further cuts in interest rates, this should help to improve competitiveness in tenders, leading to more stability in tender price inflation.
Tender price change
▉ RLB Wales
▉ BCIS (National) TPI ▉ BCIS (GBCI)
▉ Competitors (High) ▉ Competitors (Low)
INPUT COSTS
- Material costs are continuing to fall, which is reducing the pressures on pricing construction works and programme planning.
- The shortage of skilled construction workers in Wales remains a significant challenge, which has resulted in increased labour costs.
- MEP costs are generally much higher than previous quarters due to the requirements of the revised Building Regulations, leading to tenders that are challenging developers’ budgets and therefore project viability.
SECTOR FOCUS
Data Centres
Cardiff continues to attract interest and investment in new data centre projects from both developers and hyperscale date centre companies.
Infrastructure
Cardiff Crossrail is progressing towards the first delivery phase with proposals awaiting sign-off from the Welsh transport minister prior to public consultation. Phase 1A will connect Cardiff Central with the Cardiff Bay area through a tram line and associated highways and public realm infrastructure upgrades. Phase 1A, which has secured £100m of funding from the Levelling Up Fund and the Welsh government, is due to be constructed by mid-2026. Phase 1B, which will extend the line southwards from Cardiff Bay, is not currently funded.
Residential
Residential demand in Wales is still high, with several housing associations seeking to contribute towards the Welsh government’s target of building 20,000 new low-carbon homes for social rent by 2026.
Retail
Retail clients are starting to focus more on refurbishing existing buildings to improve the customer experience rather than investing in the development of new schemes.
CARDIFF, UK
Cardiff University
RLB is compiling a feasibility report for Cardiff University which will advise the institution on the optimum course of action to take in response to a large-scale roofing refurbishment project.
The roof to the Student Union building and associated plant areas requires refurbishment in order to provide long-term effectiveness and offer the university a suitable solution that meets current best industry standards. One of the options could result in the full renovation and partial demolition of the top floor.
