Published 8th Dec 2023, 06:00 BST

The report also warns, however, that ongoing economic headwinds will continue to impact the construction industry overall. It states that price volatility in materials, plant and equipment weighs heavily on the sector, which is also grappling with capacity and workforce shortages.

Turner and Townsend’s Winter 2023 UK Market Intelligence report has called for agility and adaptability from firms, pointing towards the opportunity for real estate and infrastructure programmes to draw on supply chain capacity that will be released after the scaling back of HS2.

Michael Grace, strategic lead for Yorkshire at the firm, said: “The full effects of the government’s change in tack on infrastructure remain to be seen.

The cancellation of HS2’s northern leg is set to release capacity and drive activity across the supply chain, according to a new report from consultancy firm Turner & Townsend.

“For now, businesses across Yorkshire need to focus on the challenges at hand and make the most of programmes in planning and in flight. The UK construction sector remains resilient as we weather economic storms, with particular areas in real estate, such as retrofit and refurbishment, strengthening significantly. More broadly, the real estate market can also expect to see reflected benefits from the planned investment in transport in the North of England as greater access opens opportunities for development.

“This is not to say that it’s smooth sailing for the sector. High interest rates and skills shortages put pressure on our capacity to deliver. Businesses in the region must remain flexible in the face of these difficulties, and continually re-evaluate the way they procure and manage their projects. Investment in digitalisation is one way that clients can get ahead.”

The report goes on to highlight that inflationary pressures are being counterbalanced by a marked softening in the growth of construction activity. It states that output has increased by just 0.1 percent in the third quarter of 2023 compared with the second quarter, and by 2.5 percent over the last year.

This marks the eighth consecutive quarter of growth in output, though it represents a notable slowdown since 2022, when the sector expanded by 6.5 percent.

This decrease in pace has been driven by falling housebuilding activity as a result of high interest rates and concerns over affordability. Total new housing registered a decrease in output of 2.4 percent throughout the quarter.

Turner & Townsend’s tender price inflation forecast for 2023 has held steady from its autumn prediction, at 3.7 percent for the real estate sector and 5.5 percent for infrastructure. Further increases of 2.7 percent for real estate and 4.5 percent for infrastructure are expected to be seen in 2024.

The report states that this is due to softening demand, combined with skilled labour shortages and increasing construction wages.

Despite these ongoing economic challenges, the report points to reasons for optimism. Construction orders increased by 3.9 percent throughout the quarter, following three consecutive quarters of contraction.

Cancellation of HS2 northern leg could drive activity across supply chain, new report claims