Construction sector set to bounce back strongly in 2025
The total market size of the construction and property development sector is forecast to bounce back strongly in 2025 after suffering the third consecutive year of declines in 2024.
Following a tough three years for the property development and construction industry that has seen both dwellings starts and lending decline, specialist lending expert, Rangewell, believes that there are already signs of a revival emerging, with 2025 looking to be a far better year for the sector – and specialist lenders already starting to show significantly increased appetite to lend – and at higher loan to value levels.
The analysis by Rangewell shows that the sector has been struggling in recent years with economic headwinds dampening industry appetites causing lenders to be more selective in their lending appetite, but still keen for the right deals.
In fact, outstanding lending across the construction sector has fallen for the past two years, by -7.2% in 2023 and -4.0% in 2022, with Rangewell estimating a third consecutive fall of -5.2% in 2024 before rebounding by “high single figures” in Q1 2025.
This reduction in lending appetite has also impacted the number of dwelling starts seen across the sector, as there were 162,350 new dwellings in 2023-24, falling by -19.8% from the year before, a far more significant decline versus the drop of 2.6% seen in 2022/23.
Rangewell estimates that, as a result of this decline in industry activity, 2024 is set to see the market size of the sector decline by 2.9% in 2024, the first reduction since 2021 following two consecutive years of increases, at 23.7% in 2022 and 7.2% in 2023.
Whilst the current outlook is relatively gloomy for the UK construction sector, this trend seems unlikely to continue.
The Bank of England cut the national interest rate by 0.25% to 5% in August, while another cut in November is expected by economists, which would further reduce the cost of finance.
This should not only renew interest from the commercial sector, but as mortgage costs fall, a renewed level of consumer demand is expected to emerge, meaning a stronger market for the residential construction sector.
It’s early days, but the new Labour government also seems ambitious in its moves to increase housing supply: installing a housing target of 1.5 million over the course of the parliament, vowing to loosen housing supply, as well as reclassifying some green belt land into ‘grey belt’.
With there being such a strong political appetite, combined with more favourable economic conditions and an uplift in homebuyer appetites, the future is looking far brighter for the construction and property development sector and Rangewell has already noted an increase in the appetite for lending within the sector during H2 of this year.
Alasdair McPherson, head of partnerships at Rangewell, commented: “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.”
