The industrial sector has been a growth area for construction over the last two years.
The industrial sector has been a growth area for construction over the last two years. Whilst we anticipate a near term weakening in project starts ahead of the EU referendum, the longer term prospects remain bright. Having grown rapidly during 2014, with the value of starts jumping nearly 50%, industrial project starts rose by a further 5% last year. The relatively short construction periods associated with warehousing construction in particular means that the rise in project starts provides a fairly immediate boost to overall output. Indeed the Office for National Statistics recorded a 14% rise in the volume of sector output during 2014 and output rose a further 10% last year.
The demand for logistical space has been an important driver behind sector growth in recent years. Structural changes in the retail and distribution sectors should continue to fuel the demand for new premises over the medium term.
Light industrial and manufacturing have also contributed to sector growth over the last two years. However after growing strongly during 2014, the UK’s manufacturing sector has slowed during 2015 as a result of renewed weakening in export demand from the Eurozone. UK manufacturing output fell in the third quarter of last year. A more up-to date CBI survey released in February found manufacturing output was flat over the preceding three months, with total orders books steady after a fall in January.
Near term this stabilisation in output and order books manufacturing appears to be prompting manufacturers to temper back earlier plans for adding capacity and investing in equipment. Furthermore the impending referendum on EU membership is expected to also depress industrial project starts in the as investors defer decisions until after the vote on 23 June. This is expected to be particularly the case for manufacturing projects given that EU’s UK largest export market.
Nevertheless, the medium term prospects for the sector remain positive. A recent report by Lambert Smith Hampton found that rising demand for industrial premise continued to outpace supply, with the available floorspace falling for most types of industrial premises over the last year. Whilst there was an increase in the availability of Grade A logistic and mid-box premises last year as a result of increased speculative investment in new premises, the overall supply in these market segments continued to contract.
In addition Glenigan has tracked a 16% rise in the value of industrial projects securing detailed planning during the 12 months to February. Given the firm demand for industrial floorspace and the strengthening development pipeline, we expect a renewed strengthening in project starts during the second half of this year and in 2017.