05 Jan 2023 By Ben Vogel
The UK construction industry will continue to suffer from the impact of labour shortages and price inflation this year following a difficult 2022, according to the latest report from data specialist Glenigan.
Factors such as the war in Ukraine and resulting energy crisis — coupled with rising consumer prices, supply chain problems in delivering materials and a continuing labour shortage — all contributed to an ‘incredibly challenging year’ for construction in 2022, Glenigan noted, despite initial hopes for a recovery from the problems caused by the COVID-19 pandemic.
Nor is there much cause for optimism this year, with constrained demand amid a broader economic recession.
“As industry activity cools, supply side pressures may moderate, although skill shortages are likely to persist” in 2023, according to report author Allan Wilen, economics director at Glenigan.
Cost inflation for energy-intensive materials was a major problem for the UK construction sector in 2022, with the cost of aggregates rising by 53%, insulating materials by 32% and pre-cast products by 23%. Construction material inflation for all work reached 15.5% by September 2022.
The Glenigan report also described “increased difficulties in recruiting and retaining skilled workers” with 49,000 unfilled positions — 96% more than before the COVID-19 pandemic.
Labour shortages and higher material costs are slowing down progress on approved projects; Glenigan points to a 50% increase in the time taken for a project to move from planning approval to start on site.
Construction output volume actually rose in 2022 as on-site work volume increased in the second half of the year, driven partly by a 52% increase in industrial new-build output.
However, a drop in the number of projects starting in the second half of 2022 suggests that output will weaken this year. An increase in starts for major projects worth more than £100m was offset by a 5% year-on-year fall in the value of project starts worth less than £100m.
On a more positive note, strong demand for logistics space has driven rapid growth in industrial construction activity, which Glenigan expects to remain at high during 2023. As more businesses move towards hybrid working, office requirements are evolving to fuel an increase in refurbishment projects.
If the government makes good on its promise to increase renovation funding, the value of education sector project starts should recover this year after a sharp fall in 2022. And in the healthcare sector, the value of health project starts rose by an estimated 2% last year, with increased NHS funding expected to maintain activity above pre-pandemic levels during 2023.
However, the cost-of-living crisis and economic recession combined to dampen investment in retail, hotel and leisure facilities. Glenigan described fewer detailed planning consents in 2022, which should constrain activity in these sectors in 2023.
“The sharp rise in construction costs appear to have dampened the flow of government projects during 2022 as project budgets came under review,” Wilen added in the report.
“The value of social housing projects is estimated to have declined by 9% and a drop in detailed planning consents points to a further weakening in starts during 2023.”
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