Orders turnaround begins?

New construction orders were worth £12.9bn in value in the three months to July, an improvement of 9% compared with the same period a year ago. The latest data from the Department of Trade & Industry reveals more positive news. That value growth was backed by 6% volume growth. Compared with the previous three months, orders were up 16% in value and 16% in volume. In the year to July, orders were worth £46.4bn, an increase of 12% against the same period a year ago. Volume growth in the same measure was 8%. The main bright spot was the private commercial sector, which posted strong increases in all measures in both value and volume.

The majority of the growth was created by PFI hospital contract awards: this sector grew 647% in value compared with the previous three months and more than 1,000% compared with the same period a year ago. Retail orders also showed healthy value growth: up 21% compared with the previous three months and 28% compared with the same period a year ago.

The other major subsector of private commercial, offices, produced a mixed set of figures: orders were down 7% in value compared with the previous three months, but up 11% compared with the same period a year ago. The outlook for this subsector remains strong.

The other public enjoyed a surprise 9% boost in value compared with the previous three months, mostly due to a 155% increase in universities orders. However, in volume terms the sector was down in all three measures.

The short-term downturn in public housing orders continued: a decline in value of 47% compared with the previous three months was backed by an 18% drop in volume. However, in the year to date orders were 34% better in value and 21% greater in volume.

Private housing enjoyed a short-term increase in both value and volume, however, it remained depressed on the long-term measures.

Infrastructure also enjoyed short-term increases in value and volume thanks largely to a 26% value boost from the other subsector, but the longer-term picture is less rosy. Nevertheless, orders are expected to pick up.

• The next Benchmark will appear in the 11 October issue.

All data sourced from the DTI

Value of new orders (£m at current prices)

May to Feb to Difference May to Difference 12 months 12 months Difference

Jul 06 Apr 06 May to Jul Jul 05 May to Jul to Jul 06 to Jul 05 12 months

06/Feb to 06/May to to Jul 06/

Apr 06 Jul 05 12 months to Jul 05

HOUSING

Public housing 494 926 47% 423 17% 2,416 1,803 34%

Private housing 3,676 3,208 15% 3,642 1% 13,030 13,164 1%

INFRASTRUCTURE

Water 79 155 49% 651 88% 477 1,202 60%

Sewerage 74 88 16% 84 12% 414 352 18%

Electricity 103 230 55% 213 52% 686 505 36%

Roads 203 228 11% 229 11% 1,291 1,135 14%

Other* 549 436 26% 443 24% 1,786 1,629 10%

TOTAL 1,008 1,137 11% 1,620 38% 4,654 4,823 4%

OTHER PUBLIC

Factories 13 17 27% 4 213% 51 81 37%

Warehouses 16 3 402% 10 58% 30 25 20%

Oil, steel, coal 0 0 n/c 2 n/a 1 2 50%

Schools & colleges 673 691 3% 998 33% 2,649 2,783 5%

Universities 242 95 155% 275 12% 763 816 6%

Health 181 197 8% 270 33% 922 1,170 21%

Offices 167 186 10% 122 37% 1,911 608 214%

Entertainment 93 92 1% 154 40% 543 586 7%

Garages/shops 24 21 11% 20 19% 92 106 13%

Agriculture/misc** 167 147 14% 99 68% 580 599 3%

TOTAL 1,574 1,450 9% 1,955 20% 6,326 6,775 7%

PRIVATE INDUSTRIAL

Factories 400 384 4% 405 1% 1,855 1,397 33%

Warehouses 455 484 6% 461 1% 1,725 1,515 14%

Oil, steel, coal 37 37 n/c 19 95% 140 118 19%

TOTAL 893 905 1% 884 1% 3,720 3,031 23%

PRIVATE COMMERCIAL

Schools/univs 586 433 35% 389 51% 1,840 1,166 58%

Health 1,593 213 647% 143 1,014% 2,755 1,107 149%

Offices 1,287 1,388 7% 1,162 11% 4,931 3,983 24%

Entertainment 509 419 21% 616 17% 2,046 1,998 2%

Garages 32 42 22% 78 59% 173 260 33%

Shops 1,032 847 21% 807 28% 3,764 2,944 28%

Agriculture/misc** 253 161 58% 104 143% 2,774 461 502%

TOTAL 5,292 3,503 51% 3,299 60% 16,242 11,919 36%

TOTAL NEW WORK 12,937 11,129 16% 11,823 9% 46,388 41,514 12%

*gas, communications, air, harbours and railways **police and fire stations, courts, prisons and defence PFI projects are categorised as being in the private sector

Expert analysis
The latest new orders figures paint a mixed picture for future industry workload. While total new orders during the three months ending July were 16% up on the previous three months and 6% higher than a year ago, orders stalled in July and four out of six new work sectors saw a decline in orders volumes on a year ago.

Renewed government investment continued to be an important driver behind the overall rise in new orders. Public new housing orders volumes rose firmly, up 12% in the three months to July compared with a year ago. Commercial orders rose by over a third against the previous three months and were 65% up on a year earlier in large part due to the inclusion of the £1bn London & Barts PFI hospital scheme in the May orders data.

However, the commercial sector has also benefited from a rebound in new orders for offices, up 10% during the three months ending July on a year ago. Vacancy levels and total office supply in the key central London office market are falling while office take-up is at its highest level since the end of 2004.

Strong financial service sector growth continues to fuel developers’ appetite for building new schemes in central London in anticipation of sustained demand of office space.

On the back of renewed consumer confidence, new orders for retail premises increased significantly, up by more than a quarter compared to a year ago.

In contrast, the absence of traditionally funded education and health projects continued to depress the public non-housing sector, with order volumes down by a quarter compared with a year earlier.

The infrastructure sector saw the greatest decline in new orders, falling by over a third compared with a year ago. Fewer water, electricity and road projects contributed to the poor performance; the value of water industry-related projects fell by 80%, while electricity and road projects slipped by 50% and a tenth respectively.

However, despite the current weakness of new orders, expectations for a recovery in infrastructure work remain strong, as earlier placed contracts are anticipated to feed through and water industry and Highways Agency programmes gather momentum.

Despite the pick-up in house price inflation and property transactions since the start of the year, there is no clear sign of a recovery in new housing activity. Although housebuilders report that net reservations in July were ahead of a year ago, private new housing orders in the three months to July remained 5% down on a year earlier.

Volume of new orders (£m at constant 2000 prices, seasonally adjusted)

May to Feb to Difference May to Difference 12 months to 12 months Difference

Jul 06 Apr 06 May to Jul Jul 05 May to Jul Jul 06 to Jul 05 12 months to

06/Feb to 06/May to Jul 06/

Apr 06 Jul 05 12 months to Jul 05

Public housing 351 426 18% 312 13% 1,529 1,259 21%

Private housing 2,186 1,942 13% 2,299 5% 8,227 8,630 5%

Infrastructure 878 654 34% 1,446 39% 3,750 4,138 9%

Other public 974 1,118 13% 1,266 23% 4,421 5,036 12%

Private industrial 726 745 3% 734 1% 3,084 2,601 19%

Private commercial 3,549 2,590 37% 2,154 65% 11,606 8,584 35%

TOTAL NEW WORK 8,663 7,475 16% 8,211 6% 32,619 30,248 8%

[Contract Journal, 13 September 2006, p16]