Despite a slowdown in housing, and weakness in the commercial sector, the construction industry looks set to provide a growing market for timber products over the medium term.
Official estimates for the first quarter of this year indicate that the total volume of construction output was 7% higher than a year earlier. Within the total, the volume of new work was up 5% on the year, while repair and maintenance – which accounts for nearly half of all construction – rose by 8%.
Output of new private housing in the year to the first quarter was up 14%, while new-build work in the public housing sector rose by 18%. New industrial work rose by 13% over the year to the first quarter, but output of commercial buildings dropped 4%. The repair and maintenance sector public housing saw the strongest increase, with a year-on-year rise of 18%.
The number of homes started in England during the first quarter was up 4% compared with a year earlier at 42,100. In the same period 31,900 homes were completed.
Estimates of total construction output, made by the National Institute of Economic and Social Research, suggest an annual rise of over 4% in the second quarter of 2004.
Meanwhile applications for planning permission received by district planning authorities in England during the first quarter rose by 6% on the year, to 177,000 – the largest number since 1989.
Regional contrasts
Last year saw a strong contrast between the bullish northern and central regions and the downbeat south, according to Experian‘s Business Strategies division. And the trend in regional disparity is expected to continue both this year and next.
Evidence is mounting that interest rate rises are already putting the brake on the domestic property market. The Rightmove property website shows that the housing market is slowing in the south, although the north has failed to respond so far.
Additional insight, provided by the Royal Institute of Chartered Surveyors’ (RICS) June survey, reveals that price inflation slowed to the lowest for 10 months, and the number of people looking to buy fell sharply. In contrast to this forward-looking indicator of the market, mortgage lending rebounded in June, according to the British Bankers Association.
Earlier, the RICS had reported that demand for office space is recovering after four years in the doldrums, driven by the buoyant financial services sector.
Property market
Two responses by builders to the generally weakening property market are becoming apparent: a trend to more active involvement in urban regeneration and use of brownfield sites, and a move to mass market housing as it becomes more difficult to sell luxury property.
An example of the former is a 20-acre brownfield site, soon to be developed in London’s Docklands, with 1,500 flats and 3.5 million m2 of offices and shops. And two major housebuilders, the Berkeley Group and George Wimpey UK, reportedly intend to switch the emphasis of their building activity to affordable housing and urban renewal.
New data compiled by Experian on the profitability of building and construction firms points to an increase in return on capital employed from 16.8% in the second quarter of 2003, to 18.1% in the third quarter of last year.
Looking to future demand for timber products, the volume of orders placed with contractors for new construction in the three months to May was an officially estimated 13% higher than a year before. Private housing orders rose 12% and orders for commercial buildings were up 29%. The industrial sector increased its orders for new work by an annual 4%.
Longer term prospects for construction are for a 3% rise in total output of new work this year and annual increases of 2.8% in 2005 and 3.7% the following year, Business Strategies forecasts. Repair and maintenance output is expected to rise 3.9% this year, before slowing to 2.7 and 2.4% in 2005 and 2006 respectively.
The unanswered question is whether the UK timber products industry will benefit from the rise in construction activity. Latest overseas trade figures show imports of builders’ carpentry and joinery rose nearly 9% in the first quarter of this year, although the value of imports of kitchen furniture was flat.
