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Devolved areas are seeing stronger growth in construction output than Yorkshire

The FMB Awards celebrate excellence in the building industry. Inset, Nick Knowles
The FMB Awards celebrate excellence in the building industry. Inset, Nick Knowles
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Construction output in Yorkshire has grown by 10.6 per cent since the Brexit referendum, outstripping London but still lagging behind the North West and West Midlands, new figures show.

According to the UK Market Intelligence report from Leeds-based professional services company Turner & Townsend construction output increased by 30.7 per cent in the North West, by 27.8 per cent in the West Midlands and by 27.2 per cent in the South West during the period immediately before the EU Referendum through to the end of 2017.

In contrast, construction output in London fell by 5.7 percent during this time. Scotland also saw a decline.

The North West, West Midlands and South West are identified by the report as so-called hot markets, where high demand and insufficient contractor supply has pushed up tender prices.

The report also made the link that two of the region’s driving the output for the sector, the North West and West Midlands, were also areas which had secured elected mayors via devolution settlements.

An extract reads: “All of these are regions with a high degree of devolution, including directly elected mayors and significant regional decision-making powers; and there are early signs of a correlation between regional autonomy and resilience to the confidence-sapping impact of Brexit uncertainty.”

Going forward Turner & Townsend’s report forecasts that tender prices will only increase modestly this year even.

A tender price of 1.9 per cent is forecast for Yorkshire, still ahead of London but again lagging behind the hot markets of West Midlands at 2.3 per cent growth, 2.2 per cent in the North West and 2.1 per cent in the South West.

London is forecast to have tender price inflation of 1.7 percent this year.

Paul Connolly, Turner & Townsend director, said: “As market uncertainty continues to weigh heavily on the construction industry, output data in several regions gives early signs of a correlation between regional autonomy and resilience to the confidence-sapping impact of an uncertain political future.

“The data also reveals the nuances of the London market. Despite a slowdown in the office sector, the residential and infrastructure markets in the capital remain very buoyant.”

While there remains regional variations in construction output, an emerging national trend is the rise of single-stage tendering.

In the first quarter of 2016, 27.4 per cent of projects were offered on a single-stage basis, compared to 36.5 per cent on a two-stage basis.

That split has now changed, with single-stage tendering having increased by over 10 per cent at the end of 2017 while two-stage fell by over 5.0 per cent.

“The trend reflects the increased contractor appetite to take on additional commercial and schedule risk.

Mr Connolly added: “Notwithstanding, this increased appetite, clients need to remain cautious on what risk is actually being taken on and managed by contractors.

“The failure of Carillion and the rising number of insolvencies suggests risk transfer in the current environment can be illusory.”

Capital Improvements

While the picture in the capital city made for grim reading compared with the rest of the country, the report pointed towards new infrastructure projects earmarked for London which are set to drive forward growth.

Three flagship projects, identified as the Thames Tideway Tunnel, Heathrow Q6 and Crossrail, will be worth more than £1.7bn of capital expenditure this year and help propel momentum going in to 2019.

In the third quarter of 2017 alone there was £3.7bn-worth of new infrastructure orders placed. However the data, based on ONS figures, suggests major players in the City of London are continuing to weigh-up their options post-Brexit.