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NEWS
Strong construction demand but supply hit by perfect storm
T
he Construction Products Association (CPA) has revised construction output growth up for 2021 from 13.7% to 14.3% since its previous Forecasts, but also revised down growth for 2022 from 6.3% to 4.8% in 2022. With more buoyant demand so far in 2021, supply chain constraints are expected to hinder growth over the remainder of the year and into 2022. There is real doubt as to whether there is sufficient capacity in the whole construction supply chain to enable demand. Skills shortages, product availability and cost inflation, HGV driver shortages, the impacts of energy cost rises, and delays at ports are all expected to make up an unprecedented number of constraints on growth for the months ahead. The CPA’s Autumn Forecasts show the infrastructure sector to be the
key driver of construction growth for the year ahead. Less affected by supply-side issues than other areas of construction, the main activity in the sector is due to work on five-year spending plans within the regulated sectors of rail, water, roads and energy. Output in private housing, the largest construction sector, is forecast to rise by 17.0% in 2021 and by 6.0% in 2022 with house builders confident regarding demand at the end of this year and in the first half of 2022. However, the private housing forecast for next year is a downward revision from 8.0% forecast in the Summer to reflect concerns about affordability and the sustainability of double-digit house price growth, particularly in the light of rising inflation concerns and the impact on consumer confidence and spending in the second half of
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2022. In the commercial sector, activity
on the fit-out and finishing of new and existing offices, retail and leisure buildings, plus changes in use of existing commercial developments into residential and warehouses, remains strong. Again, however, firms in these areas report that skills shortages remain key constraints. While demand for new high-profile, grade A office space appears to be robust as corporate clients move into new, quality office space aimed at fewer employees and increased space per worker, new investment is lacking in mid-range office space and in retail. There remain relatively few new office towers projects in the pipeline owing to an excess supply of floor space in urban centres given only a partial return to offices. Existing retail space
demand remains lower than pre- Covid-19 despite retail sales having recovered to pre-pandemic levels. The issue being the long-term shift away from in-store retail and towards online shopping over the last 15 years, which has accelerated sharply due to the impacts of the lockdowns. Commenting on the supply chain issues, CPA economics director, Noble Francis, said: “Demand continues to be remarkably strong across the construction industry but supply issues are hindering growth and will continue to do so in the medium- term. The biggest impacts of the supply constraints are on the small construction firms. Large contractors and major house builders have a greater certainty of demand over the 12-18 month horizon and are better able to plan and purchase in advance as well as adjust to changing economic situations. Small firms, however, are more focused on flexibility and have less visibility over demand going forward.”
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