16 Nov 2018

G&T Market Research Bulletin

CONSTRUCTION

  • Latest ONS figures show that construction output in Great Britain increased by 1.7% in September 2018 (and 2.1% in the third quarter). The increase between August and September was driven by a 2.8% increase in all new work and partly offset by a fall of 0.3% in repair and maintenance. The level of the all work series for September 2018 reached £13,995 million – a record high since the monthly records began in January 2010.

Construction Output in Great Britain: Seasonally Adjusted (All Work) (Source: ONS)

  Construction Output in Great Britain: Volume Seasonally Adjusted (All Work)


  • According to public sector procurement specialist Scape Group, the average local authority in England would like to build 18 times more homes for social rent than they realistically expect to build. Councils would like to be building around 1,800 homes per year for social rent but only expect to deliver 1,000 over the next decade (or 100 per year).
  • The recently published Finance Bill 2017-2019 has introduced new rules to protect overseas investors in UK commercial property. In the Autumn Budget, Philip Hammond announced that from April 2019 overseas investors disposing of non-residential UK property will have to pay Capital Gains Tax (CGT). However, as a result of concerns raised by the industry about the impact this would have on traditionally CGT-exempt investors that hold UK real estate assets (eg pension and sovereign wealth funds), the new Bill now contains details that allow offshore funds to elect for tax-transparent status (treating the fund as not existing for tax purposes) or special treatment (exempting the fund from tax so long as the fund managers abide by certain rules).
  • Greater Manchester has seen residential planning activity fall in the past 18 months, with plans being submitted by developers for just over 1,000 new homes in Q3 2018 – down from over 11,000 in Q1 2017.
  • Recent IHS Markit/CIPS UK PMI data shows that activity in the Construction sector outperformed both Services and Manufacturing in October. The Construction index reading (53.2) was well above market expectations, driven by strong growth in civil engineering. Housebuilding and commercial construction also increased in October but new orders rose the least in the previous five months and business expectations fell to a near six-year low amid uncertainty related to Brexit.


IHS Markit/ CIPS UK PMI for Manufacturing, Services and Construction (Source: IHS Markit)

  Manufacturing PMI   Services PMI   Construction PMI


  • The Ministry of Defence (MoD) has revealed plans for major works and a new procurement process. The £15.7bn programme of major projects for the next five years seeks to establish a broader and more diverse supply base, including doing more business with SME suppliers.
  • The Government has published data showing that there were 195,290 new homes built in 2017/18 – up 6.4% on the previous year. A further 30,000 homes were created by converting offices and other non-residential space and 4,550 units from conversion of houses into flats. However, net additional housing of 222,190 units falls short of the Government’s goal of building 300,000 new homes a year.


UK ECONOMY

  • UK GDP growth neared a two-year high in the three months to September 2018 (Q3), growing by 0.6% from the previous quarter (Q2). The services sector was the largest contributor to headline GDP growth but construction also had a notable positive contribution. Despite a strong summer, GDP growth was flat in September and longer-term growth forecasts remain subdued.

Gross Domestic Product: Quarter on Quarter growth: CVM SA % (Source: ONS)


  • The number of EU nationals working in the UK in Q3 2018 dropped at the fastest rate since records began. There were 132,000 fewer EU nationals working in the UK than a year earlier, bringing the total to 2.25 million. This was the steepest annual drop since the ONS began keeping track in 1997.
  • The rate of wage pay growth for the three months to September 2018 rose by 3.2% compared with a year earlier – the biggest rise since 2008. However real wage growth, after adjusting for inflation, is below 2015 levels.
  • The UK unemployment rate rose to 4.1% from 4.0% in the period from July to September 2018. However, the employment total continued to increase - going up by 23,000 to a record high of 32.4 million.
  • Theresa May has won ‘collective’ cabinet support for a Brexit deal after a five-hour long cabinet meeting. The 585-page draft withdrawal treaty will now be subject to political scrutiny before the plan is considered at the EU summit on 25th November and subsequently voted on in the House of Commons in December 2018. If the treaty is approved by parliament, a trade deal between the UK and the EU will be hammered out during the 21-month transition period starting on 29th March 2019.


WORLD NEWS

  • US homebuilder shares have fallen by about 30% this year and economic indicators of housing activity – sales, starts and inventories – are trending lower. Historically, downturns in housing often precede the onset of a recession and so some investors are seeing these trends as a prelude to economic slowdown in the next year or so.
  • Chinese consumer inflation rose 2.5% in October 2018 compared to a year earlier. Producer prices were also up 3.3% year on year, easing from a 3.6% rise in September.
  • The European Commission has warned Italy that its budget plans will breach the EU’s 3% deficit limit in 2020, and will come very close to doing so in 2019. The EC’s autumn forecasts indicate that it expects Italy’s deficit to reach 2.9% in 2019 and 3.1% in 2020.
  • New customs data showed that Chinese exports grew 15.6% in October compared to a year earlier, despite predictions that US tariffs would impact demand for Chinese goods. Chinese exports to the US rose 13.2% in the same period, but imports from the US fell by 1.8%.


COMMODITIES & MATERIALS

  • Brent crude oil fell to $65.11 a barrel on 13 November – a 30% drop on the four-year highs that were hit just a month ago. The sell-off, which pushed oil into bear market territory, has been exacerbated by the US’s efforts to drive down the price of oil by pressuring Gulf allies to ramp up production. The latest falls also come after OPEC forecasted lower global demand for 2019, agreeing that there was a need to cut production next year to prevent oversupply.
  • Aluminium prices continue their downward trend. According to the London Metals Exchange, aluminium prices have fallen over 30% since peaking on 19th April 2018 to US$1,193 per tonne.
  • Rebar steel prices have dropped significantly in the past two weeks as a result of Chinese over-production and a slowing demand over the seasonally weak winter period.


ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

  • CBRE has launched a new flexible office business to compete with incumbents like WeWork and IWG. The new business, called Hana, will not lease space directly, but will work with property owners and will design, build and operate flexible office space for them. It will make money through revenue and profit-sharing agreements with landlords.
  • Tritax Big Box is in talks to buy Delancy and Barwood Capital’s £400m logistics business db symmetry. Tritax is considering a capital markets exercise to raise new equity for the deal.
  • Berkshire Hathaway is planning on launching a new commercial real estate advisory business. Launching in 2019 and initially focusing on the US, the business will then be pushed out internationally, including London.
  • Mace has revealed that its turnover surpassed a record £2bn, two years in advance of the target it set in 2013. High-profile jobs such as Battersea Power Station have helped Mace achieve its target early. The firm said the increase meant its revenue had doubled in the past five years, with a third of its income now coming from international operations.
  • UK developer Dandara has appointed Rothschild to sell its £400m regional PRS portfolio of more than 2,000 homes. Buyers submitted their bids for the portfolio and it is expected that a deal will be finalised by the end of the year. After completion, Dandara Living is seeking to manage the letting and management of the sites. Work set to be procured under the contract includes residential as well as a host of other schemes such as schools and community centres.
  • Tottenham Hotspur has put in place contingency measures to use its temporary Wembley Stadium home for the rest of the season as a fallback in case there are more delays on the way to completing its new ground. Around 2,000 workers are still on site – down from the project peak of 3,800 in July.
  • Ed McAlpine will become chairman at McAlpine on 1 January 2019, replacing his cousin Gavin McAlpine, who is standing aside to focus on running the group’s renewable energy business, RES, where he will remain chairman.

If you have any questions or have some news/information to contribute to the bulletin, please contact Michael Urie, or Nick Rowe

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