Construction industry recovery hampered by bad weather
Published:  19 January, 2010

LONDON: Bad weather in December forced construction project starts to be postponed, with snow forcing further delays and making for a difficult start to 2010.

The Glenigan Index recorded a 9% year-on-year decline in December, making it the poorest month for construction project starts in recent years. However, the construction industry is forecast to see improvement in 2010.

According to Allan Wilen, economics director of the research firm: "Construction industry prospects are expected to gradually brighten over the course of 2010 as private sector confidence starts to recover, although government funded projects will be increasingly constrained by budgetary restrictions."

The housing market has stabilised progressively over the last six months and the increased flow of new private housing projects since the autumn reflects housebuilders' growing confidence that market conditions will improve further during 2010.

Glenigan recorded a temporary easing in project starts during November and December. Despite this and slower growth in social housing starts, the Glenigan Residential Index for December was still 6% higher than a year ago. The Glenigan Non-residential Index for December fell back sharply and was 24% lower than the same time a year ago.

The fall was due to the continued weakness of the private industrial and commercial sectors combined with a slowing in government funded projects. The low level of commercial and industrial projects is being driven by weak rental and capital values and rising vacancy rates which continue to deter developers.

A rise in government-funded work since April has helped partially offset the impact of weak private sector investment upon the Glenigan Non-residential Index. However, a drop in health and community and amenity projects contributed to the fall in the December Index. In contrast, the flow of education projects remained firm.

The Civil Engineering Index for December was 16% higher than a year ago. This was lower than the rise seen in November which was driven by a sharp rise in infrastructure work, in particular rail and national roads projects.

In addition to the rise in underlying project starts, the civil engineering sector is benefiting from several major schemes (projects over 100m are excluded from the Glenigan Indices), such as the 6.3bn M25 widening scheme, that are already on site and which will continue to contribute to sector activity during 2010 and 2011.

Looking ahead, Mr Wilen commented that: "The flow of private sector work is forecast to improve during 2010. In contrast, the pick-up in public sector starts seen since April 2009 has begun to lose momentum and Government funding cuts will further restrict the flow of public sector schemes over the medium term. "While underlying construction project starts are off recent lows, the anticipated recovery over the next two years will be slow and fragile."

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