26Th May 2020 Construction Update 780 Px External Overview

Local authorities told by Housing Secretary to permit requests to extend site opening hours

26Th May 2020 Construction Update 780 Px External Overview2

CONSTRUCTION

  • ONS construction output contracted by 5.9% in the month-on-month ‘All Work’ series in March 2020, as the impact of COVID-19 took hold on the construction industry. New work decreased by 6.2% while repair and maintenance work fell by 5.1% as construction activity ceased or reduced significantly. Despite the glum output figures, new orders grew by 11.8% in Q1 2020, suggesting that new order momentum was growing before the lockdown hit in late March.
26Th May Graphs Construction New Orders
  • Barbour ABI’s construction briefing #9 reported an increase in the number of open projects as well as a fall in the number of delayed projects. The total number of open projects increased to 2,157 last week from 2,037 the previous week – an increase of 120 projects (and an increase in value of £1.9bn). Furthermore, 1,011 projects (with a value of £31.5bn) have now restarted on site and almost all of the projects restarting over the last week were in the residential sector.
26Th May Graphs Table
  • According to Deloitte’s London Office Crane Survey Summer 2020, new office construction hit an all-time high before the pandemic hit. In the six months to 31st March 2020 some 45 new schemes broke ground representing more than 5m sq ft of office space. The survey revealed that the overall amount of office space currently being developed in the capital is 15.3m sq ft across 112 schemes. This represents a 29% increase on the previous survey and is 41% higher than the long-term average. However, most schemes in the period were commissioned prior to the lockdown and Deloitte Real Estate director, Mike Cracknell, said that developer sentiment has since shifted and that developments would be deferred until there is more stability in the market:

Office occupiers will likely be reassessing their real-estate needs – reflecting on costs, required occupancy ratios, ability to deliver and sustain critical functions, ease of access and overall business resilience.

  • An updated version of the CLC’s Site Operating Procedures (SOP) removes the requirement for face to- face contact to be limited. Version 4 of the SOP was published on 18th May 2020, shortly after recent government guidance for industries returning to work was released. Changes between v.3 and v.4 are minimal but some of the key changes include:
    • Removal of the requirement for face-face contact to be kept limited to 15 minutes or less
    • Seating/tables to be reconfigured to reduce face-to-face interactions
    • Workers should work side-by-side or facing away from each other
    • Workers should avoid skin-to-skin and face-to-face contact
  • Housing secretary Robert Jenrick has instructed local authorities to permit requests to extend construction site opening hours to at least 9pm on weekdays and Saturday unless there are “very compelling reasons” to reject them. The ministerial statement said that the added flexibility will help make up for lost time during the coronavirus lockdown and will also improve productivity levels on sites as workers follow social distancing protocols. Mr Jenrick also said that in some cases working could be extended beyond 9pm, including allowing 24-hour working in non-residential areas.
  • Just nine construction firms fell into Administration in April as firms were given access to financial lifelines. April’s figure compares favourably to the previous month when, according to Creditsafe, 32 firms entered administration. The reason for the reduced number of administrations is due to three main factors: financial government aid (eg the Coronavirus Business Interruption Loan Scheme), a reduction in court actions due to the lockdown and a lag in financial reporting. However, according to CPA economics director Noble Francis, cashflow issues and insolvencies are likely to see a rise in May and June as a result of lower turnover in April.


CONTRACTOR NEWS

  • ISG expects to bring back furloughed staff as more sites ramp up productivity in the coming weeks. Although around 550 staff (or 14% of its 4,000 employees) have now been furloughed the firm recently announced record-breaking revenues in the year to December 2019, with underlying pre-tax profits rising from £38.5m in 2018 to £52.5m in 2019. ISG’s forward order book remained level at £1.4bn at the end of 2019 but warned that its revenue between March and June 2020 was likely to by 25% below expectations and it is seeing a lower volume of work on site due to social distancing measures.
  • Trade bodies FMB and CECA have said that the industry desperately needs a forward pipeline of work to boost productivity in the wake COVID-19. Both bodies noted that the Government’s commitment to infrastructure spending hasn’t yet materialised into forward orders and that pipeline workload is drying up fairly rapidly. Without a good pipeline of work and a secure order book, firms face tough decisions as work comes to an end. The FMB and CECA also said that firms are facing a challenge in trying to work out how to price COVID-19 into bids.
  • Build to rent and student accommodation developer Watkin Jones has confirmed that most of its UK sites are operating at 75% of normal capacity. All its sites in England, Wales and Northern Ireland are now open and are “operating at c.75% of pre covid-19 resource levels”. The firm also noted that the cost of delivering committed work would be “modest. Its latest financial results show that pre-tax profit for the six months to the end of March was up by 19% to £26.6m, and turnover was up 17% to £186m. The firm said its final results for the year would largely rest on whether it managed to complete its planned student housing schemes.
  • After announcing that its interim results will be pushed back from 9th June to 24th June, Crest Nicholson has begun to remobilise activity on sites in a phased and controlled manner. The company has developed a detailed set of working practices and protocols to allow construction sites to operate safely and in line with government guidance. The firm said that:

This will give us time to make the necessary adjustments to site safety and to properly train our employees, suppliers and subcontractors on the new requirements and ways of working.

  • The Balfour Beatty, Vinci and Systra (BBVS) joint venture has been granted planning permission for HS2’s £1bn Old Oak Common station in west London. Work on the hub, which will link Crossrail, HS2 and the Heathrow Express, is set to begin next month. The design includes 14 platforms which are estimated to be used by up to 250,000 passengers a day and new public spaces. The new station will unlock a huge regeneration opportunity with HS2 acting as a catalyst to transform the area and make it one of the best connected development sites in the UK.


COMMODITIES & MATERIALS

  • The Builders Merchant Federation (BMF) has reported that 97% of its members now have their stores at least partially open (24% full open, 73% partially open, 3% closed). However, Build UK’s latest materials survey revealed that supply chain problems continue:
    • Demand for plaster and plasterboard eased but is likely to remain in short supply in the short-medium term
    • Aggregates and bricks proving difficult to source, as well as plasterboard fixings, internal and external insulation and partitioning metal
    • Still significant demand for FFP2 and FFP3 facemasks, gloves and disposable coveralls
  • Two battery start-ups, AMTE Power and Britishvolt, have signed a memorandum of understanding (MoU) to work closely together to manufacture battery cells for carmakrer and energy storage groups. The two companies plan to collaborate to build the UK’s first full cycle battery cell ‘GigaPlant’. The MoU outlines their plans to create and expand an onshore manufacturing supply chain for lithium ion batteries to support the country’s Road to Zero targets and transition to electrification.
  • Iron ore prices broke above $90 a tonne last week for the first time since mid-March. Supported by strong domestic demand, daily crude steel production at big plants in China increased 13% to 2.1m tonnes in the first 10 days of May – the highest level of activity this year. Despite rising steel production, inventory has quickly declined and steel prices have gradually increased.
  • HempFlax, Europe’s largest industrial hemp grower and processor, has established a building supplies division following its acquisition of a German manufacturer of natural fibre insulation materials. HempFlax’s acquisition of Thermo Natur will give it a ‘seed-to-shelf’ business model, enabling it to capitalise on rising demand for sustainable building materials. Currently, hemp insulation makes up less than 0.5% of the 3.3 million tonnes of insulation materials used each year in construction. However, 47% of UK consumers said they would pay a premium for more sustainable products so HempFlax is confident that hemp’s share of this market is set to increase exponentially.


UK ECONOMY

  • UK GDP fell by 5.8% in March 2020 as the country saw its biggest quarterly fall in GDP since the 2008 financial crisis. GDP fell by 2% in Q1 2020 but as the UK went into lockdown near the end of the quarter, the quarterly GDP figure is only a partial representation of the lockdown financial impact. The UK is expected to see a far sharper decline in economic activity in the second quarter of the year. The latest economic data also revealed that construction shrank by a record 5.9% in March alone, as work on hundreds of sites was stopped or suspended.
  • UK consumer price inflation (CPI) fell to its lowest level since August 2016, adding to the pressure on the Bank of England to cut interest rates. CPI slowed on an annual basis to 0.8% in April (from 1.5% I March) according to the ONS. Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.
  • The chancellor Rishi Sunak warned that the economy may not “immediately bounce back” from COVID-19. His words reflect the Treasury’s view that hopes of a “V-shaped” recession may have been misplaced. The number of workers receiving state wage subsidies has now reached 10m, according to new Treasury figures, masking what is likely to be a much worse jobs crisis as state support is wound down. Speaking to the Lords Economic Affairs Committee, the chancellor said the Government’s actions to prop up the economy would “limit scarring and limit the impact on the medium-term public finances”, but he accepted there was likely to be some persistent damage wrought by the crisis.


GLOBAL ECONOMY

  • Preliminary data shows that the 19 Eurozone economies suffered an overall 3.8% contraction in GDP in Q1 2020. France’s economy performed the worst, shrinking by 5.8%. Spain contracted by 5.2% and Italy’s GDP fell 4.7%. Germany’s GDP shrank by 2.2% compared to the previous quarter making it one of the better performing Eurozone economies despite industrial production tumbling. The pandemic is expected to cause a big jump in unemployment, despite European governments putting over 50m workers on subsidised short-term leave schemes.
  • According to a study by the Centre for Risk Studies at the University of Cambridge’s Judge Business School, the COVID-19 pandemic could cost the global economy $82 trillion in its ‘economic depression” scenario over the course of the next five years. To put the figure in context, the GDP for the world’s 19 leading economies was $69.2 trillion last year. Its “optimistic’ take is a is a loss of $3.3 trillion over five years whilst its consensus expectation calls for $26.8 trillion, or 5.3% of five-year GDP, to be lost. Regardless, the pandemic will bring about structural shifts, including higher savings by households, more protectionism, realigned supply chains and greater digitalisation.
  • In a sign that the downturn in activity across the Eurozone has begun to ease, the IHS Markit Eurozone flash purchasing manager’s index for services rose to 28.7 in May from 12 in April. The flash reading exceeds the reading of 25 that was forecasted by economist polled by Reuters. Despite the easing of lockdown restrictions, the bloc is still set for a historic and unprecedented contraction in Q2. However, these figures provide reassuring signs that the downturn likely bottomed out in April.