Sector Snapshot
Our overview of market activity, pipeline and trends in key sectors from a national standpoint.
Consolidation of regions
Our Sector Snapshot consolidates the view of sectors from around the UK. The chart shows our market sector activity analysis and those sectors and subsectors facing more challenging pipeline prospects. Unsurprisingly, residential subsectors are most under pressure with houses most in decline. Industrial, age care and data centres are all holding up relatively robustly, notwithstanding economic headwinds, and are broadly in growth phase around the UK.
Commercial
Expectations of base-build and fit-out are higher now, with lease events setting the scene for upgrade. There is also evidence of developers adjusting their sights from residential to commercial, in search of better returns. New-build schemes are arising, but are constrained by viability and risk concerns due to build-cost inflation and high financing costs.
Data centres
The continuing development of data centres is a salient feature of the current construction market in and around areas of high population. This brings with it enhanced need for fulfilment of associated infrastructure and power needs. Development and upgrading of buildings, technology and related infrastructure will continue to be a key source of major construction capital and maintenance workload for the foreseeable future.
Education
The advent of RAAC issues will place further pressure on the public purse, and will require innovative solutions around PPP and PFI, particularly as contracts expire. Across the regions, investment in student facilities and accommodation remains strong, though balanced by project viability concerns and an eye to net zero obligations despite the impact of build-cost inflation on budgets.
Health
The diversion of previously earmarked funding towards resolving RAAC issues is beginning to impact NHS Trusts, and that effect will become clearer as budgets are revisited, particularly in respect of new-build projects. While there is still massive spend across the health estate, budgets for the construction of brand-new hospitals are already under pressure from recent build-cost hikes.
Infrastructure
The redirection of HS2 investment around the Midlands, North of England and Wales on smaller projects will be beneficial to many organisations. The uncertainty around which projects will be greenlighted and when will not help calm concern about investment pipelines that are moving further out in terms of timeframe. The stabilising of interest rates and reduction in inflationary pressures are welcomed by all.
Logistics & Manufacturing
The lack of a UK industrial strategy continues to hinder inward investment, which as investors move away from China could be a missed opportunity to capitalise on attracting manufacturing investment into the country. There are also concerns generally around contractor and subcontractor insolvencies, which is increasing the requirement for more robust background checks. The move to smaller, ‘last mile’ units remains a key trend.
Public & Civic
Delays due to planning timeframes and consequent pressures on pre-defined budgets are placing stresses on activity levels in several locations. Although there remains in many regions a solid volume of potential workload, the recent spikes in construction build-costs have had serious impacts on static budgets. However, regional and town centre rejuvenation needs continue to hold focus, especially so given the government’s commitment to levelling up.
Residential
Schemes in the public and private sectors are slowing in their advancement to site, due to planning delays, budget crises and caution over timing-to-market. High mortgage rates and living costs have dented private market prospects. New starts for private housing are sharply down this year, and social housing almost static, but both are forecast to revive next year, which will feed wide-ranging trades’ work back into the sector.
Retail
Although activity levels are high in some parts of the retail sector, there is clear evidence of sell-off of unprofitable sites and consolidation in light of high levels of consumer price inflation and high interest rates. Where business rates and rents have been rebased, previously stagnant retail spaces have seemed to recover, providing anticipation of recovery.
Sport
The hosting of major sports events remains a key target to act as a catalyst for infrastructure development and attracting inward investment. The large-scale multi-year programmes of these very large and complex projects feature very specific exposure to the vagaries of unforeseeable economic shocks, which emphasises the importance of strong risk and uncertainty management and responses, both in the pre-construction and on-site stages.
