3 Dec 2018

G&T Market Research Bulletin

CONSTRUCTION

  • The Government has outlined a £600bn decade-long construction and infrastructure pipeline. Robert Jenrick, Exchequer Secretary to the Treasury, has said that around half the projects will be privately funded, while around £190bn of planned investment in the pipeline will be delivered by 2020/21. The pipeline includes a commitment to use modern methods of construction (MMC) for public projects.
  • The National Audit Office (NAO) is launching an investigation in early 2019 that will probe into Crossrail’s delay. The NAO said:

“Our investigation will examine the causes of the cost increases and schedule delays, the terms of the additional funding, and the governance and oversight of the programme.”

London Mayor, Sadiq Khan, has asked TfL to provide support to the NAO’s review and has expressed concern that Crossrail executives had either misled or failed to anticipate delays and cost overruns.

  • New government figures show that the number of units built for social rent in England has fallen by 78% over the past 10 years. New data on the state of affordable housing supply from the Department for Housing, Communities and Local Government showed that 6,463 homes for social rent were built in the one year period between April 2017 to March 2018, versus the 29,645 units built in 2007/08 period.
Affordable Housing Graph
  • Interserve, alongside other major suppliers to the Government, has agreed to create a back-up plan (or ‘living will’) in order to avoid a repeat of the Carillion-style chaos in the event of its collapse. The living will is being drawn up to ensure public services continue without major interruption in case of its failure. David Lidington, Minister for the Cabinet Office said:

“Carillion was a complex business and when it failed it was left to government to step in – and it did. But we did not have the benefit of key organisational information that could have smoothed the management of the liquidation”

  • The recently published Raynsford Review has made 24 recommendations to overhaul the English planning system. Under the review’s proposals, the National Infrastructure Commission (NIC) would be given statutory power to help with national and local planning. The NIC would also be responsible for managing the long-term strategy to guide sustainable development and set out strategic growth and advice on where special planning arrangements might be needed.
  • Westminster City Council has reported a slowdown in major planning applications subject to planning performance agreements (PPAs) received in the year to date. Such applications are down by 42%. However the total volume of applications has only dipped by approximately 5%. The City Council’s Planning and City Development Committee blamed uncertainty around Brexit and a slowdown in London’s residential market.


UK ECONOMY

  • EU leaders have approved the draft withdrawal treaty at the recent Brexit summit to unwind EU-UK relations. Jean-Claude Juncker, the European Commission president, said “this is the only deal possible”. After a two-week campaign to sell the deal, the treaty will be voted on in the House of Commons in the week starting 10th December 2018. A rejection of the treaty here would open up several possibilities, including the UK leaving the EU with no deal on 29th March 2019.
  • Early data suggests that footfall in shops was down more than 5% compared to the previous year for the Black Friday weekend (Friday, Saturday and Sunday), with an insufficient rise in online sales to offset the fall. Shopping centres were hit the hardest with an annual decline in visits of 8% or more for each of the three days.
  • UK Government borrowing in October 2018 was the highest it has been for three years. The UK borrowed £8.8bn in October, £1.6bn more than the same month during the previous year. The increased levels of borrowing were the result of higher spending and a slowdown in the growth of tax receipts.
  • Goldman Sachs has forecast that the Pound will rally vigorously next year against the Euro and Dollar, stating that its base case is that Britain’s parliament will ratify an EU withdrawal pact in December or January. Its strategists forecast sterling will increase 4.6% and 10% from current levels, to €1.176 and $1.41, respectively.


WORLD NEWS

  • The EU has finalised a non-binding screening scheme that creates a centralised database of current foreign investments in Europe and an alert system for future foreign investments. The scheme addresses the issue of predatory Chinese investments in European infrastructures and technology. However, individual countries, and not the European Commission, would still make final decisions on whether or not to approve foreign investments.
  • Ahead of the G20 summit in Argentina, the Trump Administration has claimed that China has not altered its predatory trade practices in the last few months. The comments cast doubt on a potential truce being reached at the summit.
  • The OECD has warned that if the trade war between the US and China escalates further it could take a heavy toll on global growth by 2021, creating price pressures that could force the Federal Reserve to step up monetary tightening. If the US imposes a 25% tariff on $200bn worth of Chinese imports from January 2019, and China retaliates, this would double the impact on each country’s output and push US consumer prices 0.6% higher than otherwise.
  • Japan’s manufacturing sector slowed to a two-year low in November 2018. The Nikkei-Markit flash manufacturing purchasing managers’ index fell to 51.8 in November, its lowest since November 2016. The survey respondents reported weaker demand and decreasing new orders.
  • On 26th November 2018, the Italian government said that it was sticking to its main 2019 budget goals for now as it awaits a cost analysis of its main spending measures, but left open the possibility of eventually cutting its deficit target to as low as 2% of GDP from the 2.4% currently projected.


COMMODITIES & MATERIALS

  • Brent crude oil prices fell below $60 a barrel on 23rd November 2018 as traders questioned Saudi Arabia’s ability to curtail supply while under pressure from the US to keep fuel prices low.
  • BP has started production at Clair Ridge oil project in the UK North Sea. The new £4.5bn development will offset the long-term decline of the country’s offshore industry with BP aiming for peak production of 120,000 barrels a day in the second phase.
  • Chinese steel producers (which make half the world’s steel) ran up losses for the first time in three years in November 2018 as prices slid into a bear market on weak demand and near-record supply, ending years of solid profit margins. Lower demand has left mills with a surplus of steel, causing prices of rebar to fall 21% from their seven-year peak reached in August 2018. Costs are now being reined in by using cheaper, low-grade raw material iron ore.


ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

  • The Liverpool Hospital delayed by the collapse of Carillion has called in Mace to help finish the scheme. At the Trust’s recent board meeting it emerged that Laing O’Rourke was not prepared to take any risk on either construction cost or timetable. Instead, these risks will sit with the Trust and will be managed through Mace and the in-house project team. With remedial work required for the ventilation, lighting, structural beams and cladding, the project is now expected to be completed towards the end of 2020.
  • Heathrow Airport has given 65 sites eight weeks to submit pre-qualification questionnaires in order to become one of four offsite logistic hubs for the airport’s third runway. The hubs will work by pre-assembling components offsite before transporting them in to Heathrow just as they are needed. The hubs will help cut freight traffic, costs and speed up construction by as much as 30%.
  • Intu Properties’ share price fell by 36% on 29th November after a consortium ditched plans to pay £2.9 billion for the shopping centre landlord. The consortium, led by John Whittaker’s Peel Group and including the Olayan Group and Brookfield Property Group, confirmed that it is abandoning its takeover attempt after Intu had repeatedly extended the offer deadline. Intu told investors:

“Given the uncertainty around current macroeconomic conditions and the potential near-term volatility across markets, the consortium is not able to proceed with an offer within a timeframe which is manageable within the confines of the [UK takeover] code timetable.”

  • The London Legacy Development Corporation has submitted a planning application for Stratford Waterfront, as part of its £1.1bn plans for the East Bank regeneration at Queen Elizabeth Olympic Park. The proposals include 600 new homes with 35% affordable housing. (G&T is providing Cost Management and Life Cycle Costing services)
  • The Government is assembling a £1.2bn modular framework for the provision of temporary and permanent modular buildings primarily for use in education and healthcare. Contractors have until 17th December 2018 to apply for any of the seven lots to provide modular buildings – the largest being a £522m lot for the provision of permanent modular units for education.
  • Foster + Partners has submitted plans for the tallest building in the City of London – a 305m visitor attraction shaped like a tulip. The 3,000m² building, which will be built next door to the Gherkin, will feature glazed observation levels supported by a huge concrete shaft to create “a new state-of-the-art cultural and educational resource for Londoners and tourists”
  • A feasibility study has been completed for the Eden Project North proposal in Morecambe, Lancashire. The seafront project comprises of crescent-shaped pavilions inspired by mussels, with each structure focusing on different environments. Eden is now seeking funding for the project.
  • Contractors have been put on notice to deliver Birmingham’s £435m HS2 station. Firms competing for the project have until 31st December to register their interest for the design and build contract. A shortlist of up to five contractors will then be invited to tender in May 2019 with HS2 Ltd’s design consultant being novated across to the successful bidder.

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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