Post-Covid Pandemic Trends Emerging In UK Non-Residential Building Industry

Fitch Solutions / Infrastructure / United Kingdom / Mon 13 Jun, 2022

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Key View

  • We forecast the UK's non-residential building industry to see real growth of 4.3% y-o-y in 2022, down from 15.9% y-o-y in 2021, with lower office demand dragging on commercial construction while electric vehicle (EV) battery factory activity supports industrial construction.
  • The persistence of hybrid working beyond the Covid-19 pandemic will see companies begin to act to meet their long-term real estate needs during 2022, with companies in the service industry already beginning to realise material reductions in their presence in their urban office space.
  • The Covid-19 pandemic’s widespread disruption to global trade will last beyond the Covid-19 pandemic itself and is set to particularly benefit the UK's burgeoning EV battery manufacturing industry, with public investment announcements to support the electrification of supply chains and EV manufacturing set to support sustained investment.

We forecast the UK's non-residential building industry to see real growth of 4.3% y-o-y in 2022, down from 15.9% y-o-y in 2021. In the near term, this will see the industry outperform its residential building industry counterpart, which we expect to grow by a moderate 2.6% y-o-y in 2022. Between 2022 and 2031, our current forecast period, we expect the UK's non-residential building industry to average annual real growth of 1.9% y-o-y. As a result, this will see its industry value rise from GBP58.7bn (USD73.9bn) in 2022, to GBP82.7bn (USD104.1bn) in 2031.

Sizable Value In Non-Residential Building

UK - Non-Residential Building Industry Value & Real Growth

f = Fitch Solutions forecast. Source: ONS, Fitch Solutions

Within this headline growth figure, the industry is exhibiting divergent fortunes across its various areas of activity, such as industrial and commercial construction, as a result of post-Covid pandemic industry trends beginning to crystallise. As outlined in our Infrastructure Key Themes For 2022, we expect post-Covid pandemic trends regarding the use of office space, e-commerce, and the onshoring of supply chains to begin to materially impact project activity during 2022:

Office Space:

The persistence of hybrid working beyond the Covid-19 pandemic, whereby workers split their time between their usual place of work and home, will see companies begin to act to meet their long-term real estate needs during 2022. At Fitch Solutions, we expect hybrid working to structurally reduce overall demand for fresh office space in developed markets, as companies adjust to permitting their workers to spend a portion of their work week away from their usual place of work. In 2022 we will see the impact of this on non-residential building activity commence, as companies conclude their respective assessments of the purpose and scope of their existing real estate presence and adjust this accordingly to reflect their long-term needs.

Already, companies in the financial services industry such as HSBC and Lloyds Banking Group moved to begin reducing their UK office space. HSBC stated in February 2021 that the company intends to reduce its London office space by 40% in the long-term, and in February 2022 stated that it had reduced its global office space by 18%; equivalent to 3.4mn sq ft. Similarly, Lloyds stated in February 2021 its intention to reduce its UK office space by a cumulative 20% by 2023, and reported in February 2022 that it had already achieved a 9% reduction. More recently, in April 2022, Deloitte reported that it would exit its City of London campus in May 2022, which would bring the total reduction in its London office space since the Covid-19 pandemic to 250,000 sq ft.


Demand for e-commerce will remain structurally higher following the Covid-19 pandemic, and begin to materially shift commercial and industrial building activity during 2022. Companies will look to capitalise on the lower fixed costs generated by reduced commercial building space and the scalability of e-commerce operations while consumers will remain accustomed to the convenience and choice offered by e-commerce. This shift will reduce investment in large, urban retail premises to accommodate vast consumer-facing inventories, and instead create demand for small-scale stores in both urban and suburban locations to act as collection points in conjunction with warehouse space situated elsewhere.

As highlighted by our Consumer & Retail team, consumer-facing businesses in the UK have expanded their e-commerce offerings throughout the Covid-19 pandemic, driving mass adoption of e-commerce services by both retailers and consumers. This has seen internet sales as a percentage of total retail sales rise substantially across developed and emerging markets alike, while retail footfall has remained structurally below pre-Covid levels despite the gradual removal of social distancing measures. Specifically, data from the ONS show that online sales accounted for 26.4% in April 2022, down from a recent peak of 38% in January 2021 but up from 19% in February 2020, prior to the Covid-19 pandemic. Among notable industrial building projects, February 2022 saw Winvic Construction start work on the 283,280sq m first phase of a major logistics park in Derby. The second phase is expected to complete in two years and will deliver the remaining 51,096.6sq m of warehouse space.

E-Commerce To Remain Structurally Higher, Offering Upside For Warehouse Operations

Great Britain - Online Sales, % Of Total Retail Sales

Source: ONS

Onshoring Of Supply Chains:

The Covid-19 pandemic’s widespread disruption to global trade will last beyond the Covid-19 pandemic itself, and spur upside for industrial building activity via the onshoring of manufacturing. We at Fitch Solutions have successively highlighted that globalisation reached a plateau towards the end of the previous decade, driven primarily by greater geopolitical tensions regarding trade, with the Covid-19 pandemic now having pushed globalisation towards a reversal. 2022 will see the impact of this global trend on the industrial building project pipeline play out, as companies act to enhance the resiliency of their respective supply chains against future external shocks.

The UK's non-residential building industry specifically will benefit from the burgeoning electric vehicle (EV) battery manufacturing industry, with our Autos team holding a positive view on the investment outlook for the market. Public investment announcements in H2 2021 to support the electrification of supply chains and EV manufacturing reinforce this view, and expect the UK government's support for the establishment of a domestic EV supply chain to attract sustained investment. Among notable projects, October 2021 saw Coventry City Council and Coventry Airport announce a joint venture to convert Coventry Airport into the UK’s largest EV battery gigafactory; with a 60GWh capacity that would produce 600,000 EV batteries per year by 2025. Elsewhere, January 2022 saw Britishvolt receive an in-principle offer from the UK government to support the construction of a 930,000sq m battery gigafactory in Northumberland, with a 30GWh capacity which would produce batteries for more than 300,000 electric vehicles per annum.

Notable Gigafactory Activity To Boost EV Battery Manufacturing Capacity
UK - Gigafactory Production Capacity, GWh
Source: Fitch Solutions

Our views on the prospects for non-residential building activity continue to be borne out in data from the Office for National Statistics concerning construction output across private industrial and private commercial work. Rebased to 2019, April 2022 saw private industrial output at 115, having recovered to its pre-Covid-19 pandemic level as of December 2021. Output for private commercial work, however, has continued to languish well below its pre-Covid-19 pandemic level and remained at 71.6 as of April 2022. Indeed, its output has pulled back from a recent high of 81.2 in September 2020, before industrial and commercial output can be seen to materially diverge from June 2021 onwards. While we continue to monitor the industry for signals of a potential recovery in private commercial output, along with the implications for investment from a slowing in near-term real GDP growth, it remains highly likely that commercial construction output will remain structurally lower as the aforementioned industry trends surrounding e-commerce and the use of office-space persist.

Divergent Fortunes For Industrial And Commercial Construction Output

UK - Construction Output, 2019 = 100

Source: ONS

Quarterly data regarding new orders for industrial and commercial construction respectively show an uptick in industrial construction orders since a record-low of GBP443mn in Q2 2020, after which new orders saw a surge to GBP1,893mn; the highest reading since Q3 1997. Though this series has pared back slightly, with the reading for Q1 2022 at GBP1,508mn, this remains well above the level of new orders for industrial construction seen over the past 15 years.

Bulk Of Projects Across Industry Currently At Planning
UK - Share Of Commercial Construction (LHS) And Industrial Construction (RHS) Projects By Status, %
Source: Fitch Solutions Infrastructure Key Projects Data

Regarding the split of projects in the UK's non-residential building industry across different phases of development, our Infrastructure Key Projects Data (KPD) show a significant proportion of both commercial and industrial construction projects at planning; 52% and 75% respectively. Projects under construction, meanwhile, account for the second-highest proportion in both cases; 37% and 22% respectively.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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