Office sector to shrink 20% this year

However, growth is expected to accelerate again in 2019 and 2020.

That’s according to the Construction Products Association (CPA), which has released its spring forecast for the sector.

The CPA said construction had endured a weak start to the year following Carillion’s collapse in January and poor weather in February and March.

Growth for the whole of this year is expected to stay flat but it will then accelerate by 2.7% in 2019 and 1.9% in 2020.

Infrastructure and private housing remain the two bright spots for construction activity, the CPA said.

Infrastructure is forecast to grow 6.4% this year and 13.1% in 2019 as civil engineering work starts on projects such as HS2, the Thames Tideway Tunnel and Hinkley Point C.

Meanwhile, private housing is due to see a 5% increase in output during 2018, with demand underpinned by the government’s Help to Buy policy through to March 2021.

The sharpest decline is forecast in the commercial sector, where the CPA said a post-EU referendum fall in contract awards for new offices space since the second half of 2016 is expected to translate into a fall in activity this year. 

Offices construction is expected to decline 20% in 2018 and 10% in 2019. 

Carillion’s liquidation is also expected to be felt on commercial PFI health projects, including the Midland Metropolitan Hospital and the Royal Liverpool Hospital, where work has been paused to reassign or retender contracts. Output in the PFI health sub-sector is forecast to fall 5% this year.

Noble Francis, economics director at the CPA said: “The start of the year was a bad one for construction. 

“Carillion, the UK’s second biggest contractor, went into liquidation in January and led to a hiatus on infrastructure and commercial projects. The snowy weather badly affected work on site for at least three working days in February and March and, as a result, 2018 Q1 construction is likely to be £1.5bn lower than in 2017 Q4. Fortunes for the industry overall will depend on the extent to which construction activity catches up during the rest of the year.

“Construction activity is forecast to be flat this year and rise by 2.7% next year, primarily driven by infrastructure and private house building. Half of the activity lost in Q1 is expected to be regained during 2018. 

“Work on some Carillion projects has already restarted, on joint-ventures or where major clients such as Network Rail have been keen to continue work. Other projects will take time to retender but are still likely to restart this year. Large infrastructure projects should also allow for a catch-up after the adverse weather and often have penalty clauses for delays. Despite the sector’s strong growth prospects, questions remain about poor government delivery of major infrastructure projects.

“Private housing starts are expected to rise 2.0% in both 2018 and 2019 in spite of the slowdown in the general housing market as Help to Buy is clearly sustaining demand for new build homes. Outside London, house building will rise quicker than this but growth overall will be constrained by the ongoing fall in demand for high-end residential in the capital.

“The growth in infrastructure and private house building this year is forecast to offset falls in the hard hit commercial sector, where Brexit uncertainty continues to hit international investment in new office towers in London and high street woes affects the construction of new retail.”