Commercial work leads the way as output continues to bounce back

A boom in investor confidence in the commercial sector has helped construction output continue to bounce back, new data has revealed.

The commercial sector has taken a significant hit during the pandemic, with the “work from home order” raising questions about whether the office market will ever return to normal.

But the latest IHS Markit/CIPS UK construction PMI update has revealed a second strong month for the sector, with the survey figure remaining high at 62.2 after barrelling up to 61.7 last month from a score of 53.3 in February.

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “Forecasts of the death of the city were premature. What many returning to [the office] over the last few weeks will have noticed is the speed and scale new developments have cropped up at. This has bolstered the bottom lines of commercial contractors and positioned them well for further growth and investment going forward.”

Overall, the headline IHS Markit/CIPS UK construction PMI total activity index posted 61.6 in April, down only fractionally from March’s six-and-a-half year peak of 61.7.

A third straight month of growth has increasingly made the score of 49.2 in January, when the third lockdown was imposed and the death toll from covid topped levels seen in the first wave, look like an anomaly.

But the survey became the latest in a string of reports to warn on growing materials pressures, with respondents saying a rapid rise in demand for construction products and materials had continued to stretch supply chains in April.

The latest lengthening of suppliers’ delivery times was the third greatest since the survey began in 1997, exceeded only by those seen during the lockdown in April and May last year.

And higher prices paid for a wide range of construction items contributed to the fastest overall rate of cost inflation since the survey began in April 1997, with the index at 84.6, up from 77.8 in March. Steel, timber and transportation were among the most reported items that had gone up in price.

Michael O’Shea, construction partner at law firm, Gowling WLG said the materials shortages would lead to an increase in alternative building methods.

“[These] will focus the industry to continue to develop alternative ways of delivering projects with the use of modular and prefabricated construction in order to balance the increasing demand on traditional supply chains to ensure they can deliver on the market demands.”

Both civil engineering and housebuilding also continued to expand, with the index for those sectors sitting at 61.5 and 61.2 respectively, with the former achieving the fastest speed of recovery since September 2014. This is compared to figures of 58 and 64 in March respectively.

The growth in civil engineering was attributed to increased levels of work on major infrastructure programmes, including contract awards from HS2 and Highways England.

Total new work increased for the eleventh consecutive month in April, with the latest improvement in order books the strongest for just over six-and-a-half years.

This contributed to the steepest rate of job creation across the construction sector since December 2015.

And Scape chief executive Mark Robinson said contractors had to think about long-term changes being accelerated by the building boom.

“It’s important that contractors maintain this momentum and use the sustained levels of investment from central government as a catalyst for positive change. Our recent consumer research indicates that the general public wholeheartedly endorse investment in construction projects that create social value.”