Government-backed projects could dominate construction recovery in 2021

10 min read

In the latest UK Market View, Mace forecasts that a rapid sector growth in government-backed schemes and infrastructure could dominate the construction industry’s recovery trajectory in 2021. 

Overall, just under 10% of all new work output comes from the public non-housing sector. For construction to benefit from public sector projects, the government needs to follow through on its commitments and invest the money needed.

The report also forecasts tender prices to fall -2.5% nationally and -2.0% in London, before they return to growth in 2022. 

Mace highlights that while construction output rose over 40% in the third quarter, new orders were only 0.6% higher in the third quarter than in the same quarter last year, due to continued uncertainty around Covid-19 and Brexit. 

Projects covering pharmaceutical, both in terms of research and manufacturing, and datacentres look set to see robust growth. Notably, new orders in the third quarter for health from the private sector were greater than in recent years, yet in accounting for just 5% of the commercial sector and 1% of all new orders.

However, construction could still face the risks of material costs rise. The biggest risk for materials in 2021 may come if the infrastructure around UK ports fails. Even if transport does continue to flow as freely as it currently does, firms having to fill in customs declarations will increase costs.

Steven Mason, Managing Director for Cost Consultancy at Mace, said:

“As we approach the end of a turbulent year, the ongoing impact of Covid-19 on the UK economy is all too apparent as major business failures in the retail and hospitality sectors seize the headlines. On the face of it, the construction industry appears to have weathered the storm of the immediate impact of Covid-19 remarkably well, but the uncertainties of Brexit now loom once again.

“The recent government spending commitments will provide some welcome comfort to those operating in the public sector and for long term infrastructure programmes. Other sectors look less certain, and the longer term impact of new working patterns on commercial space will provide a combination of opportunities for repurposed space, as well as the obvious challenges for demand in the short term.

“All these factors paint an uncertain picture for 2021, and this will continue to subdue tender prices as the supply chain looks to secure pipeline workload in what looks to be another challenging year ahead.”