UK Market Intelligence Q1 2018: Regional hotspots support construction growth amid Brexit uncertainty

Construction markets in the North West, West Midlands and South West have seen output increase despite Brexit uncertainty and appear to be benefiting from devolution deals and greater autonomy.

  • North West sees construction output increase by 30.7 percent since second quarter of 2016, while London activity falls amid Brexit uncertainty
  • National trend for single-stage tendering increasing contractor risk
  • Modest tender price inflation of 1.8 percent forecast for rest of 2018

Construction markets in the North West, West Midlands and South West have seen output increase despite Brexit uncertainty and appear to be benefiting from devolution deals and greater autonomy. 

According to our most recent UK Market Intelligence report, construction output increased by 30.7 percent in the North West, by 27.8 percent in the West Midlands and by 27.2 percent in the South West during the period immediately before the EU Referendum through to the end of 2017. In contrast, construction output in London fell by 5.7 percent during this time.

The North West, West Midlands and South West are identified by the report as ‘hot markets’ where high demand and insufficient contractor supply has pushed up tender prices. 

However, our report forecasts that tender prices will only increase modestly this year even in these hot markets with 2.3 percent growth forecast in the West Midlands, 2.2 percent in the North West and 2.1 percent in the South West.

London is forecast to have tender price inflation of 1.7 percent this year.  

Paul Connolly, Turner & Townsend Director, commented:

As market uncertainty continues to weigh heavily on the construction industry, output data in several regions gives early signs of a correlation between regional autonomy and resilience to the confidence-sapping impact of an uncertain political future.

"The data also reveals the nuances of the London market. Despite a slowdown in the office sector, the residential and infrastructure markets in the capital remain very buoyant.”

While there remains regional variations in construction output, an emerging national trend is the rise of single-stage tendering. In the first quarter of 2016, 27.4 percent of projects were offered on a single-stage basis, compared to 36.5 percent on a two-stage basis.

That split has now changed, with single-stage tendering having increased by over 10 percent at the end of 2017 while two-stage fell by over 5.0 percent. The trend reflects the increased contractor appetite to take on additional commercial and schedule risk.

“Notwithstanding, this increased appetite, clients need to remain cautious on what risk is actually being taken on and managed by contractors. The failure of Carillion and the rising number of insolvencies suggests risk transfer in the current environment can be illusory,” continues Connolly.

For further information, contact:

Kristoffer Hudson
Economic Analyst

t: +44 (0)113 258 4400
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