New construction orders - Q4 2006 output: Expert analysis (Benchmark)

PDF of Q4 2006 output

The official statistics reveal that overall construction output growth accelerated during the final quarter of last year, confirming the findings of recent trade surveys of main contractors and building material manufacturers. Strong growth in commercial and industrial new work secured an overall rise of 1.3% in construction output in 2006. However, the weakness in all four repair and maintenance sectors and the patchy delivery of key government programmes limited overall industry growth.

Firm demand for office space, particularly in the key central London offices market, continues to boost the commercial sector, as a booming financial services sector has fuelled a sharp take-up of office accommodation and a fall in the pool of available premises over the last two years. Retail- and entertainment-related work recovered somewhat during 2006, in response to stronger consumer confidence. Education-related PFI activity rose sharply last year, up 50% compared with a year ago, despite the slow progress of the government’s Building Schools for the Future programme.

Similarly, while the government is currently reviewing a number of planned PFI hospital schemes, health-related PFI output rose by 14% during 2006 as a whole, as work progressed on previously approved schemes. In contrast, the trend towards the use of PFI for education and health projects continues to depress public non-housing output.

Industrial building work remained strong last year, supported by both investment in production facilities and warehouse construction.

Social housing activity was a consistent bright spot last year, with output up by almost a quarter during 2006 as a whole, indicating that the government is pressing ahead with its commitment to invest more in new social housing provision. However, although the condition of the English social housing stock is gradually improving, progress is slow and public housing RMI activity continued to fall back last year. Indeed, the government’s enthusiasm for delivering its commitment that all social housing meet the Decent Homes standard by 2010 appears to be waning, with a core of around 140,000 hard-to-improve properties now expected to fail to meet the 2010 deadline.

Private housing activity held up during Q4, securing a 2% rise in output for the year as a whole. In contrast, the private housing RMI sector suffered a second year of decline, as an earlier weakening in housing market activity depressed the flow of move-related RMI work and as consumers’ appetite dwindled for funding home improvement through borrowing.

Infrastructure output fell back more sharply than expected last year, mainly due to a decline in water and sewerage and roads activity. Electricity-related output was the only bright spot within this sector, boosted by increased investment in both generating capacity and the distribution network. More positively, after four years of declining output, a sustained recovery in infrastructure activity is expected over the next few years, with growth primarily driven by greater investment by the water and energy utilities, while a modest pick up in road and rail investment is also anticipated in the medium term.

PDF of Q4 2006 output