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Industrial www.thefis.org 15 sector remains somewhat subdued but the commercial, hotel and education sectors are displaying significant weakness. 2022 saw a new record but commercially sensitive sectors display significant softness, consistent with the wider uncertainties evident at the current time. See Figure 2. Planning applications - 33,274 were submitted consistent at £111bn The infrastructure sector maintained overall activity with a 26% year-on-year increase with £26bn, due to renewable power generation. Also industrial fell by 4% but remained at near-record levels with £15.5bn - an 80% increase compared to 2019 and due to post- Brexit demands for warehousing. The healthcare sector rose by 17% to a new record of £3.3bn thanks to hospital refurbishment. Meanwhile, commercially sensitive sectors remained relatively weak, with the residential sector falling by 8%, the commercial sector by 5%, and the hotel sector consistently weak. Planning application activity was consistent in 2022, maintaining the post- Covid bounce. Consistent with planning approvals, activity remains muted in the commercially sensitive sectors. See Figure 3. www.barbour-abi.com Forecasts for 2023-2024 The CPA recently published its Industry Forecasts 2023-2024 theWinter 2022/23 Edition booklet. The report explained that after the political and economic chaos in Autumn 2022 following the failed Mini Budget and a degree of stability, the UK economy faces a brief, shallow recession that lasts until the second half of 2023 due to the impacts of high inflation, declining real wages, rising interest rates and falling consumer confidence and spending. This is also expected to have an adverse impact on demand in the construction industry. The report does forecast a recovery in demand is expected in private housing fromQ2 of 2023 and the commercial output is expected to fall in 2023 before growth in 2024. Construction output This is forecast to fall by 4.7% in 2023, from a historic high after two years of growth that raised activity to levels higher than pre- pandemic. The industry is not immune to the effects of a wider UK economic recession, falling real household incomes and rising interest rates. As a result, the largest falls in construction activity are expected to be in sectors most reliant on households such as private housing new build and repair, maintenance and improvement, which are expected to offset continued growth in infrastructure and industrial. Private housing fortunes will likely go one of two ways over the next 12-18 months The main forecast anticipates a soft landing for the general housing market, which involves a sharp decline in activity during 2022 Q4 and 2023 Q1 before a recovery in demand. Clearly, there has been a sea change in the housing market and government policy to stimulate the housing market has been replaced with higher interest rates, quantitative tightening and a less friendly government policy environment. The greatest impact of the decline in housing market demand is likely to be on property transactions, which are anticipated to fall by around 20%. House prices are anticipated to endure a potential 8%-10% contraction during 2023, after two consecutive years of double-digit growth, returning house prices back to levels seen around a year ago. Overall, private housing completions are expected to fall by 11% and, as is usual in a slowing, uncertain market, the greater fall is likely to be in starts, of 14%, as house builders focus on completing existing developments rather than starting new developments until they are clearer over demand over the next 12 months. Commercial output This is expected to fall by 5.4% in 2023 before the growth of 1.3% in 2024. Commercial is currently a two-speed sector. Activity remains strong on the refurbishment and fit-out of existing developments as well as the conversion of commercial towers into residential within cities or industrial and logistics on the outskirts of cities. Orders for commercial refurbishments fell towards the end of 2022 although it is difficult to determine at this point whether it was a temporary blip due to the political and economic chaos post-Mini Budget leading to investor decision-making hesitancy or whether it was reflective of the start of a declining trend. The sustained, strong demand for Grade A office space points towards the former and that activity is likely to remain robust in the medium-term. Commercial new build towers activity was badly affected as towers signed up to and started pre-pandemic finished but without projects to replace them. A return to the ‘new normal’ and a partial return to office working for most workers saw a rise in commercial tower orders, from a low base over the last 18 months and there are projects in the pipeline. With rising construction costs, increasing interest rates, raising borrowing costs and worsening economic prospects, however, it raises the question of whether we will see those projects break ground near- term or whether they will be paused and pushed back into 2024 given the uncertainty. However, commercial refurb and changes in use activity, which has driven activity in the sector over the last two years, continues apace. Infrastructure This has benefitted greatly in recent years frommajor projects and activity is set to continue to grow although challenges in the sector remain. The new Chancellor committed to maintaining capital expenditure in cash terms. Given double-digit cost inflation, this suggests that projects currently on the ground will go further over budget. Plus, there will be further client hesitancy and delays over signing up to new projects. In the medium-term, projects towards the end of spending plans will be pushed back into the next periods due to financial constraints. Local authorities have increasingly been diverting finance from new build projects to cover the double-digit cost inflation on more urgent repair and maintenance projects given councils’ financial constraints. Overall, infrastructure output is forecast to rise by 2.4% in 2023 and 2.5% in 2024, focusing on larger projects and frameworks already on the ground before medium-term public sector financial constraints come into play. To read more visit: www.constructionproducts.org.uk Annual value (£bn) % change Relative Strength Index (RSI)* 2022 2021 2020 2022-21 2021-20 2022 2021 2020 All sectors 111.1 111.2 96.7 0% 15% 68 74 52 Residential 49.3 53.9 49.6 -8% 9% 36 68 55 Infrastructure 26.0 20.7 11.4 26% 82% 86 77 42 Commercial & retail 8.5 8.9 9.9 -5% -10% 27 26 32 Hotel, leisure & sport 4.8 4.8 7.4 1% -36% 25 13 49 Industrial 15.5 16.1 13.0 -4% 24% 77 94 100 Medical & healthcare 3.3 2.8 1.5 17% 81% 91 97 42 Education 3.7 4.1 3.9 -10% 7% 21 21 2 Figure 3. Planning applications - Key information including sector breakdown