Review of Construction in 2022

GLENIGAN’s Construction Review of 2022 reveals the staggering inflation in construction materials costs, which peaked at a massive 26.8% in Q.2 2022.

The 2022 Construction Performance Review shows material inflation is currently running at around 15%. However, ongoing international geopolitical events and domestic socioeconomic disruption indicates market volatility and, possibly, another inflation spike in the first half of 2023.

Looking at specific materials categories, energy intensive products were hit hardest, with the price of aggregates and insulation rising an eye-watering 53% and 32% respectively.

More barriers to imports post-Brexit and rocketing power prices can be seen as the key reasons for these dramatic rises, and will put pressure on contractors already working to tight margins.

Labour and Wait

The construction sector also felt the pinch in terms of labour supply during 2022. A shallow recruitment pool and greying workforce, Brexit and the Pandemic have resulted in less ready access to EU workers.

Whilst there are currently 2.14 million employed in the sector, this number is almost 7% below pre-Pandemic levels and 2.4% on a year ago. Couple this with 49,000 construction vacancies and there’s a shortfall with the very-real potential to stifle 2023 activity. This might put a serious dent in the current Government’s ambitious infrastructure and levelling-up plans in the short-term.

Projected Performance

Despite material and labour pressures, output actually rose in 2022 by 6% compared to the previous year. Most significant was a 52% leap in industrial new build and 11% registered for private residential new build activity.

However, tempering any optimism for a speedy recovery, a drop in the number of projects starting on site last year points to a weakening in construction output in 2023.

2022 saw a significant slowdown in projects progressing to work on site, as contractors and clients have reappraised the design and cost of build, largely prompted by price inflation and regulatory changes. For example, many housing developers pushed back start dates in Q.3 2022, following the introduction of Part L of the Building Code. Overall, this has led to a 50% increase in the time it takes from planning approval to commencing on site.

Furthermore, the value of underlying project starts also declined by 5% in the second half of 2022, compared with the same period a year ago. This was reflected in a 5% dip in the value of underlying planning consents during the same period and a concerning 14% drop in the number of projects securing planning consent.

Looking Ahead

Glenigan Economic Director, Allan Wilen

Glenigan’s Economic Director, Allan Wilen, said, “The construction sector has already been buffeted by strong headwinds in the second half of 2022, and these look to become more forceful in 2023. The cautious optimism and tentative performance increase this time last year has been washed away by events out of the sector’s control, and many businesses will be battening down the hatches and hedging their bets for a potential, if modest, uplift in the latter half of the year.

“Whilst supply side pressures may ease, the skills shortage is a persistent problem which the industry will urgently need to tackle if it wants to return to pre-Pandemic output levels. However, there are a few bright spots in the gloom, with major projects including HS2 driving activity, as well as an increased focus on other critical infrastructure in energy, healthcare and data centre developments. Whilst next year will remain depressed, with a 2% decrease in the overall value of underlying project starts, Glenigan predicts a 6% increase in 2024, setting construction back on the road to recovery.”

Read the full 2022 Construction Performance Review report.

 

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