The latest analysis from Searchland, the development site sourcing specialists, estimates that the total market size of the UK construction sector is set to reduce by -2.8% in 2023, driven by a declining residential sector as developers continue to struggle with the challenges presented in the current market.
Searchland analysed the latest figures on the market size of both the residential and commercial sectors, how each sector has performed and what a difficult 2023 could mean come the end of the year with regard to total market size.
The research shows that prior to the pandemic, the market size of both the residential and commercial construction sectors had been increasing consistently every year since 2013. In 2019, this combined market size based on revenue sat at £114.2bn, the highest seen over the last decade.
However, the complications of the pandemic had a notable impact, with total market size falling by -4.2% in 2020 and further -20.6% in 2021.
The result of this decline over two consecutive years meant that the total estimated size of the construction market sat at just £86.8bn – the lowest annual benchmark seen since 2015.
2022 brought promising signs with a 23.9% annual increase in market size, driven by the residential market which grew by 28.1%, while the commercial sector played a supporting role with a 7.6% year on year increase.
However, with interest rates spiralling and the dark clouds of economic uncertainty gathering over the UK, 2023 is expected to bring a reversal to this sector revival.
The total size of the combined construction sector is estimated to contract by -2.8% come the end of the year, putting total market size based on revenue at £104.6bn
This decline is expected to be driven by the residential sector, with cooling market conditions caused by higher mortgage rates expected to dampen demand for residential homes and reduce the size of the residential construction sector by -4.7%.
In contrast, the commercial sector is forecast to grow by a further 6.2% in 2023, although at an estimated £20.2bn, it remains substantially smaller than the residential market (£84.3bn).
Co-founder and CEO of Searchland, Mitchell Fasanya, said, “Both the commercial and residential construction markets have faced some challenging times of late and the pandemic certainly left its mark with respect to the revenues generated across both sectors.
While there have been strong signs of a return to form in 2022, 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.
For developers, the ability to streamline their processes when looking to deliver stock to market remains key, and doing so will allow them to reduce the costs involved in sourcing and developing sites, while maximising profit margins in what remain tricky market conditions.”