The UK construction industry, encompassing both residential and commercial sectors, has experienced a rollercoaster ride in recent years, heavily influenced by the global pandemic and economic uncertainties.
A Decade of Growth and Disruption
Before the COVID-19 pandemic, the UK’s construction industry was on a growth trajectory. From 2013 to 2019, both the residential and commercial construction sectors saw consistent annual increases in market size. The peak of this growth was in 2019, with the combined market revenue reaching £114.2 billion, the highest in a decade.
Pandemic Impact: A Two-Year Decline
The outbreak of COVID-19, however, brought unforeseen challenges. The industry witnessed a significant downturn, with the total market size dropping by 4.2% in 2020 and a further 20.6% in 2021. This decline brought the market size down to £86.8 billion in 2021, the lowest since 2015.
2022: A Year of Recovery
The year 2022 marked a resurgence in the construction sector. The industry saw a 23.9% increase in market size, fueled primarily by the residential sector’s impressive 28.1% growth. The commercial sector also contributed with a 7.6% increase.
The 2023 Forecast: Challenges Ahead
Overall Market Contraction
Despite the recovery in 2022, the construction industry faces a challenging year ahead. The combined market size is projected to contract by 2.8%, estimated to be around £104.6 billion by the end of 2023.
Residential Sector Setback
The residential sector, in particular, is expected to experience a more significant downturn. Higher mortgage rates and economic uncertainties are predicted to cool the housing market, leading to a 4.7% decrease in the residential construction sector.
Commercial Sector Resilience
Conversely, the commercial sector is forecast to grow by 6.2% in 2023. However, at an estimated £20.2 billion, it remains considerably smaller compared to the residential market, which is projected to be £84.3 billion.
Expert Insights
Mitchell Fasanya from Searchland highlights that both the commercial and residential sectors have faced significant challenges recently. The pandemic has notably impacted revenue generation in both areas.
Despite the positive signs in 2022, Fasanya warns of the ongoing complications posed by high inflation, increasing mortgage rates, and wider economic uncertainty. These factors are likely to dampen the performance of the residential sector in 2023, leading to a contraction in the total market size.
Fasanya emphasizes the importance of efficiency for developers. Streamlining processes to deliver stock to the market is crucial, allowing for cost reduction in sourcing and developing sites while maximizing profit margins in these difficult market conditions.