DEVELOPMENT

UK construction activity to remain constrained

Economic pressures and rising building costs impacting short-term output.
Written By:
Bryndis Sadler, Knight Frank
2 minutes to read
Categories: Property Sector Development service Consultancy

New Construction activity in 2023 is to remain constrained in the short-term with the long-term seeing developers adapting to new materials and construction methods to meet regulatory pressure and combat increased building costs.

There were a number of  factors that have impacted UK construction activity including the UK economy shrinking by 0.6% in September 2022 and GDP falling 0.2% overall in the run up to Liz Truss’s mini-budget.

A multitude of factors have fed into this, including;

  • Delayed Covid recovery as businesses have dealt with on and off again government support
  • The War in Ukraine impacting supply lines; Brexit restrictions on importing goods
  • An estimated 1 million days of work lost to Industrial Action across multiple sectors
  • Dealing with the highest rates of inflation since the early 1980s

Growth in the construction sector slowed as businesses have struggled with growing materials cost, supply chain delays, growing labour vacancies and rising costs.

Materials cost increasing 

An estimated 40% of construction projects’ costs are materials and the UK imports 60% of the materials involved in building projects.

The domestic production costs of these goods has increased as GDP growth has slowed across Europe in part due to the ongoing conflict in Ukraine, a pace that is expecting to persist in 2023.

Construction opportunities 

While the costs of materials, energy and labour are expected to continue at a premium, constraining construction activity, there is however a glimmer of light for the UK commercial construction sector in that MEES regulations require all non-domestic properties to hold an EPC certificate of B by 2030.

There is a total of 51% of London Office stock that holds an EPC rating of C or below, indicating 140m sq ft of space that will require upgrading.

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