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UK Construction Sector on the Verge of a Downturn, Predicts Searchland Analysis

Amid the growing economic challenges in the UK, the construction industry is bracing for reporting a significant downturn in 2023.
Searchland’s recent analysis forecasts a 2.8% reduction in the sector’s market size, predominantly influenced by a cooling residential market.

Pandemic’s Lingering Impact

“The pandemic’s effect on the construction market has been profound and far-reaching,” said Mitchell Fasanya, Co-founder and CEO of Searchland. Prior to the pandemic, the UK’s construction sector was consistently growing, with the combined market size of residential and commercial sectors peaking at £114.2 billion in 2019.
However, the unprecedented challenges brought by the pandemic led to a sharp decline, with the market size dropping by 4.2% in 2020 and an alarming 20.6% in 2021, plummeting to its lowest since 2015 at £86.8 billion.

A Brief Resurgence in 2022

2022 offered a beacon of hope, with the market witnessing a robust 23.9% annual increase. This recovery was primarily fuelled by the residential sector, which grew by 28.1%, while the commercial sector also showed signs of recovery with a 7.6% increase. These figures indicated a strong comeback from the pandemic-induced slump.

The Forecast for 2023

Despite the promising signs in 2022, the sector is not out of the woods yet. Fasanya warned: “The ongoing complications posed by high inflation, increasing mortgage rates, and wider economic uncertainty look set to dampen the performance of the residential sector in 2023, leading to another retraction in total market size.”
The expected -2.8% contraction in 2023 is set to reduce the total market size to approximately £104.6 billion.

The residential sector, in particular, faces significant challenges, with a forecasted -4.7% decrease due to higher mortgage rates and other market cooling factors. This is in stark contrast to the commercial sector, which is expected to grow by 6.2% in 2023. However, at an estimated £20.2 billion, the commercial sector’s size remains considerably smaller than the residential market, valued at £84.3 billion.

Developers’ Dilemma

In these testing times, developers are under pressure to streamline their operations. Fasanya emphasises the necessity for developers to adapt: “For developers, the ability to streamline their processes when looking to deliver stock to market remains key. This approach will be crucial for reducing sourcing and development costs, while maximising profit margins in an increasingly challenging market.”

As 2023 unfolds, the UK construction sector stands at a crossroads. The dual challenges of economic uncertainty and shifting market dynamics are poised to test the resilience of both the residential and commercial sectors. The industry’s ability to adapt and innovate will be key to navigating these turbulent times, with a focus on efficiency and cost management becoming more crucial than ever.

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