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The consistent rate hikes announced by central banks worldwide are showing their impact on the construction market. The mortgage has become increasingly expensive, resulting in reduced buying decisions from home seekers. In the United Kingdom, the trends are no different with interest rate hikes spooking buyers. As a result, homebuilders have cut back on construction significantly in H1 2023.
Over the past 18 months, the Bank of England has raised official interest rates 12 times to combat the rising inflation. However, these rate hikes have done very little to bring the inflation levels down in the United Kingdom. With disappointing news on inflation, expectations of further rate hikes have pushed mortgage rates up in Great Britain recently. As a result, ConsTrack360 expects a further slowdown in the residential construction market in H2 2023.
Despite the slowdown in residential construction activities, the overall market is expected to perform relatively well compared to the last few quarters in the United Kingdom. Easing price pressures and supply-chain bottlenecks are expected to support the new order books for the sector going forward in H2 2023. The trends have already started to emerge in the commercial and civil construction sector.
The commercial construction sector is expected to outpace other subsectors in the United Kingdom on the back of rising demand among corporate clients. Many new projects have received approval in H1 2023, which also includes the Countess of Chester Hospital. Notably, NHS England has given £110 million for the construction of the new building, which will house the women and children's service. Alongside a three-storey building, the construction proposal also includes a temporary car park.
While commercial and civil construction sectors are projected to maintain a stable growth trajectory, the housing market is expected to remain under pressure in H2 2023 in the United Kingdom.
Inflation and rising interest rates are also expected to impact housebuilding activities in the Australian market. Many residential developers across the nation have announced liquidity owing to various macroeconomic factors. Labor shortages and interest rate increases have resulted in cost blowouts, meaning builders on fixed-price contracts found themselves unable to sustain the financial losses.
PBS Building and Porter Davis Homes Group are among the many that have collapsed in Australia in H1 2023. In H2 2023, many other names are expected to announce liquidation in the Australian market. In the commercial sector as well, prominent names like Llyod Group have announced the closure in Australia. However, amid the ongoing collapses in the construction market, some of the big names are seeking to advantage by overtaking the projects of collapsed firms.
If the interest rate continues to grow in the United Kingdom in H2 2023, ConsTrack360 expects a series of collapses to emerge, especially in the residential sector. Going forward, ConsTrack360 also expects similar trends to emerge in the North American markets like the United States, where home seekers are struggling due to rising mortgage rates and an inflationary environment. Recessionary fears are expected to dampen the demand in the residential sector in the United States in H2 2023, which might spook new construction activities and projects undertaken by homebuilders.
While the outlook for the residential subsector remains subdued in all of these global markets in H2 2023, the construction sector growth will be driven by the uptake in commercial and infrastructure projects. In the United States, commercial and industrial construction activities are projected to record robust growth over the next few quarters, driven by investment through the Inflation Reduction Act and CHIPS Act.
Many of the leading firms have announced multi-billion-dollar investments in the construction of new factories. Toyota, for instance, announced a US$2.1 billion investment in North Carolina EV battery factory in June 2023. Hyundai and LG Energy Solution, on the other hand, announced a collaboration to build a US$4.3 billion battery cell plant in Georgia, United States.
Infrastructure construction activities are also projected to remain robust in markets like the United States over the next few quarters, thereby aiding the growth of the overall construction market.
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