The grass is always greener: Construction sector to blossom in 2025
Following three consecutive years of severe financial strain, research from Rangewell shows there’s already signs of revival in the construction and property development sector, ready for its comeback next year.
Tighter budgets that have spawned from the pandemic and cost-of-living have caused a significant number of lenders to be more apprehensive about investing in the construction and property sector. New research from Rangewell, an independent finance organisation, shows that two years outstanding lending levels had dropped by 4% and 7.2% in 2023. What’s more, experts have estimated it will continue to drop by 5.2% in 2024.
The reduction in lending appetite has also impacted the number of dwelling starts – the state work begins on a foundation – seen across the sector. There were 162,350 new dwellings in 2023-24, falling by -19.8% from the year before.
As a result, 2024 is set to see the market size decline by 2.9% this year – the first reduction since 2021 following two years of increases.
However, on a more positive note, experts believe trends will improve next year as a result of the Bank of England cutting interest rates by 0.25% in August. Economists are also forecasting another reduction in November.
If interest rates continue to fall, not only will renew interest crop up for the commercial sector, but lower mortgage costs will spark the attention of the consumer market.
In addition, researchers have claimed that the new government seems ambitious in its moves to increase housing supply – installing a housing target of 1.5 million over the course of parliament, vowing to loosen housing supply, as well as reclassifying some green belt land into ‘grey belt’.
Alasdair McPherson, Head of Partnerships at Rangewell, said: ‘The construction and property development industry is emerging from a very lean period over the last few years after being stymied by the economic uncertainty that has enveloped all regions of the UK and we expect the overall market size to contract in 2024 due to the downward trends seen both with respect to lending and new dwelling starts.
‘The good news is we’re already seeing improved confidence across the sector and appetites within the lending space have certainly improved during the second half of this year – and continue to grow.
‘With a further cut to interest rates likely in the coming weeks and the market starting to build momentum, we expect significantly positive uplifts into 2025 – and are already seeing developers with good projects receiving significantly better lending terms than even three months ago.’
Image: Tuân Nguyễn Minh
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