11Th Feb

Market Research Bulletin: Deloitte’s regional crane surveys show building booms in Manchester and Leeds

CONSTRUCTION

  • The IHS Markit/CIPS UK Construction PMI fell to 50.6 in January of 2019 from 52.8 in December, well below market expectations of 52.4 but indicating that the sector is still expanding. New business growth eased to an eight-month low and job creation was the weakest in two-and-a-half years as Brexit uncertainty had led to hesitancy and a corresponding slowdown in progress on new projects:

IHS MARKIT/CIPS CONSTRUCTION PMI (SOURCE: IHS Markit/CIPS)


    • Commercial work was the weakest performing area, recording a decline in work on commercial construction projects for the first time in 10 months
    • Civil engineering activity increased marginally, with the rate of growth much softer than the 19-month high seen in December 2018
    • Residential work was the strongest performing area, although the expansion was the slowest seen since March of 2018
  • Deloitte’s 2019 regional crane surveys indicate that workloads in Leeds and Manchester are leading a building boom in the regions. In Manchester 14,480 residential units were under construction in 2018 (2017: 11,135 units) and in Leeds 2,232 residential units were under construction in 2018 (the second highest level recorded in Deloitte’s Leeds crane survey).
  • Insolvency data revealed that in 2018 there were 2,954 construction firms that went insolvent - an increase of 12% on the previous the year and more than any year since 2013. The industry lost more businesses to insolvency than any other industry in the wake of the collapse of Carillion. The figures said 1,857 (62%) of construction firms which collapsed in 2018 operated in specialised activities such as groundwork, demolition, plumbing or electrical work.
  • Latest data from the Mineral Products Association (MPA) show that year-on-year mortar sales increased by 14.3%, despite dropping 1% in Q4 2018. Sales were at their highest level since records began in 2004 indicating that housebuilding remained buoyant in 2018. However, infrastructure projects appear to be getting pushed back. Ready mixed concrete sales volumes fell 1.6% nationally in 2018, weighed down by reduced demand in London, where sales declined by 4.8%.
  • Housing secretary James Brokenshire has confirmed the eight housing associations that will be given a £497m funding boost to build affordable homes. This lot of funding will be used to build more than 11,000 new affordable homes, including properties for social rent.
  • Derwent London said it was accelerating deliveries of materials to its sites to make sure they didn’t grind to a halt in the wake of a no-deal Brexit. Head of development Richard Baldwin said that he was most worried about:

“the potential impact on the timely flow of materials and construction components and labour to projects”

Richard Baldwin, Head of Development, Derwent London

He added the volatility of foreign exchange rates was also a growing worry, making it difficult to predict the cost of imported materials.

  • After the recent emergency Brexit summit convened by the Construction Leadership Council (CLC), the CLC has said that it would now convene a group to address how the industry can recruit, retain and support foreign nationals in UK construction, and engage with the consultations on the government’s Future Skills Immigration White Paper. It will also work with trade associations to better understand how WTO rules will impact the supply chain and communicate its concerns to the Government.
  • Savills’ London office take-up data shows that despite Brexit uncertainty, the City saw office take-up climb to 7.6m sq ft in the year to December 2018 – a 2% increase on the previous year. Whilst office take-up in the West End was down by 5% from the previous year, it was still 25% higher than the long-term 10-year average:


West End V City Office Take Up

UK ECONOMY

  • Data from the British Retail Consortium shows that retail sales rose at an annual rate of 2.2% in January, up from a flat reading in December. This was primarily driven by resilient food sales.
  • International trade secretary Liam Fox suggested that weakness in some of the EU’s largest members’ economies will push Brussels to renegotiate the Brexit deal with the UK. With Italy now officially in recession and weakness in the German and French economies, he said:

“This is not a good time to introduce further unnecessary instability into [the] European economy. This is why I hope the European Union will recognise that the best way forward for all of us is to get an agreement as quickly as possible”

Liam Fox, International Trade Secretary
  • UK manufacturers and suppliers are stockpiling goods at the fastest rate since records began almost three decades ago, as buying activity was stepped up to mitigate against potential supply-chain disruptions in the coming months.
  • MPs are increasing pressure on the Government to scrap business rates for high street retailers. The Treasury Select Committee has launched an inquiry into the impact of recent changes to business rates policy, asking whether alternatives, including a tax based purely on land values, could help high street retailers survive the rise of online competition.
  • UK house price growth stalled in January as property values increased at their slowest pace in nearly six years. House prices in January were 0.1% higher than they had been one year previously.
  • The annual pace of consumer credit growth fell to 6.4% in December 2018 — its slowest rate of growth since 2014 — down from 7.2% the previous month.


WORLD NEWS

  • The Federal Reserve has said it will be “patient” on any future interest-rate moves and signalled flexibility on the path for reducing its balance sheet, in a pivot away from its bias last month toward higher borrowing costs.
  • A report by the UN’s trade and investment body concluded that tariffs imposed by Washington and Beijing would do little to protect their domestic economies, because most bilateral trade would be diverted to other countries, particularly in the EU.
  • A trade deal (dubbed ‘cars for cheese’) between the EU and Japan came into force on 1st February 2019. The economic agreement is the largest bilateral trade deal ever made by the EU in terms of market size and will be the largest zone of free trade created in history. The pact sweeps away almost all tariffs between economies representing close to 30% of global gross domestic product.
  • The Eurozone economy held steady, growing by just 0.2% in Q4 2018 - in line with economists’ expectations. In 2018 GDP growth for the full year was 1.8%.
  • In an effort to increase pressure on Nicolás Maduro (Venezuela’s embattled president), the US has imposed sanctions on Venezuela’s state-owned oil firm, PDVSA. Approximately $7bn of PDVSA assets would be immediately blocked as a result of the sanctions.


COMMODITIES & MATERIALS

  • British Steel companies will face trade restrictions in almost all their export markets in the event of a no-deal Brexit. The lobby group, UK Steel, said in a briefing paper that departing the EU without an agreement would mean duties or quotas in markets accounting for 97% of outbound shipments, up from about 15% at present. Britain’s 2.6m tonnes of steel exports to the EU would also be “severely disrupted” because of extra paperwork, costs and border delays, it added.
  • Citigroup expects copper to rally by 10% over the next six months if President Donald Trump signs a trade deal with China. Citi’s forecast comes following a 15% fall in the price of copper over the past year to $6,116 a tonne, driven by a slowdown in China’s economy.
  • Brazilian iron ore miner, Vale SA, announced plans to cut production by 40m tonnes (10% of its annual output) so that it can decommission dams similar to the one that burst at the end of January 2019. As the world’s biggest producer of iron ore, a reduction of Vale’s output is likely to put upward pressure on prices.


ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

  • Under Interserve’s latest plans to rescue the firm after struggling to cope with its £650m net debt load, existing shareholders will be almost wiped out. The firm plans to reduce its net debt to approximately £275m by issuing £480m of new equity (amounting to a 97.5% stake in Interserve) to creditors. The lenders will also offer an extra £75m through a new debt facility that matures in 2022.
  • Deals to build London’s new HS2 stations at Euston and Old Oak Common have gone to teams led by Mace and Balfour Beatty. The jobs have a combined price tag of close to £3bn.
  • The Cabinet Office, through its buying arm the Crown Commercial Service, is looking for firms to fill 38 lots in 11 lot groups for the provision of construction, maintenance and demolition work across all government departments and public bodies under a new £30bn mega framework.
  • The housing association L&Q has said that it plans to use modern methods of construction on every home it builds after 2024. The group said it will launch its first range of pre-built product designs next month and in the spring will build its first homes outside the capital using offsite components.
  • Westminster City Council has approved plans for the redevelopment of a run of buildings fronting Oxford Street that will feature close to 9,000m² of retail and office space.
  • Weston Homes has opened a 75,000 sq ft logistics centre to manufacture off-site housing with capacity to process 1,200 Intermodal container shipments per year. The £12m building factory in Braintree, Essex has sections for manufacture, assembly and quality control – as well as office and general warehouse space. Components will be stored and then retrieved via automated machines according to specification choices.
  • A proposed £1bn redevelopment of the Olympia centre in west London has been approved by the local council. The 186,000m² scheme will see the creation of two theatres, two hotels, a four-screen cinema, a rooftop park and other restaurant space. The JV has yet to decide on a type of construction contract – with a decision set to be made on who will build the scheme by the third quarter of 2019. (G&T has been appointed as quantity surveyor on the project)
  • British Land’s Broadgate scheme has been given the go-ahead by City planners. British Land plans to replace the southern-most element of London’s Broadgate Centre with a new 14-storey scheme which will include 74,178m² of new floor space, almost 45,000m² of which would be new offices, with 21,350m² of retail, restaurant and leisure space earmarked for its lower floors. (G&T are providing project management services on the scheme)
  • The Government has provided £18m to fund research and development of digital technology to aid construction. The schemes look at areas such as 3D-printed concrete components, robotics, augmented reality, and merging artificial intelligence (AI) with BIM.