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Last quarter activity

Construction output
Great Britain (down)
London (down)

Contractors’ new orders
Great Britain (up)
London (down)

Output
In Great Britain as a whole, DTI figures show that new construction work fell in the first quarter. The volume of output was about 5% lower than during the middle half of 2004 at constant prices. The volume of new work recorded in London was the lowest quarterly total (at current prices) since the first quarter 2001. The value was 15%, lower than the average quarterly total from 2004, ignoring inflation. This reduction was caused by falls in private commercial work (20% lower than the 2004 quarterly average), public non-housing work (down 18%) and infrastructure (down 40%).

Orders
Contractors’ new orders throughout Great Britain slumped in 2003 before bouncing back to register record volumes in 2004. The first five months of 2005 have maintained this upward trend, with orders 6% higher than last year’s values. This is largely because of some significant infrastructure orders after a sharp fall in this sector during 2003 and particularly 2004. There has also been an improvement in private industrial orders, also after three lean years. However, public housing and non-housing orders are so far running at a lower level this year than last.

In London, new orders slumped in 2003 but, by contrast, have been in further decline since the second quarter of 2004:

the provisional total of orders secured by contractors in London in the first quarter this year at £1.2bn is lower than during the 2003 trough. For this reason, inflation in London has been lower than in any other region over the past three years.

The North

Although the 2012 Olympics will inevitably focus attention on London, the North remains the area where construction activity is most intense. The chart to the right shows that workload has been generally good throughout the country, but particularly so in the North.

Yorkshire and Humberside
The pace of growth in the North-west and North-east eased last year and into the beginning of 2005, but the market in Yorkshire and the Humber region has continued to steam ahead at an even faster rate.

The region has benefited from a massive increase in private sector housebuilding and, even though a year ago the buy-to-let market in places such as Leeds was being described as saturated, development continues apace. In common with the North-west, Yorkshire and Humber has also had the benefit of large inward public sector investment over the past three years. Over the next few years, Leeds is forecast to benefit from strong growth in office development.

North-east
Like Yorkshire and Humberside, the North-east has witnessed huge growth in housebuilding, its value to the local industry increasing 177% between 2001 and 2004 to £625m last year, with the beginning of 2005 showing no sign of easing – unlike many regions in the South.

North-west
The North-west remains the biggest construction market of the three regions – it was worth a little more than £11bn last year, compared with £9bn in Yorkshire and Humber and £3.5bn in the North-east.

The private commercial sector accounts for about 30% of new-build work in all three regions, and work in this sector is likely to remain strong in the North-west in the medium-term. In Liverpool, the Paradise Street development is reshaping the centre of the city. In Manchester the Spinningfields development continues apace while the Hilton Tower, which will be the city’s tallest building is beginning to dominate the skyline.

Tender price inflation
The rise in building activity in the North over the past three years has unsurprisingly manifested itself in substantial price inflation, led in the main by site labour rates chasing limited resources. Over this period, inflation in traditional building works has been close to 25% in the northern regions, whereas everywhere else inflation has been in the order of 18-20% (except in London, where the comparatively depressed workload has held inflation to 15%).Given the increase in workload, it is not surprising that contractors of all sizes are busy. This enables them to seek out easy projects that offer good profit levels making it difficult to secure competitive interest for riskier projects. For the same reason it is now quite difficult to compile adequate tender lists for single-stage design-and-build projects, often because estimating departments are simply overstretched. Even for traditional projects with QS-prepared bills of quantities, contractors are pushing for six weeks to tender. Project preliminaries costs can now comprises more than 20% of a total bid, usually attributed to legislation requiring increased levels of administration staff and higher costs for site cleanliness and security. Although in some areas there is still a shortage of traditional skills such as bricklayers and plumbers, there is a clear trend in Manchester of labour shortages being filled by plasterers, roofers and plumbers from Eastern Europe.

Nevertheless, the volume of work in all three regions will ensure that tender prices over the next year will continue to rise at a faster rate than elsewhere with price rises of 5-6% forecast.