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Market Research Bulletin: NLA survey anticipates a 204% increase of tall towers being completed in the capital in 2019


  • Construction activity declined in February 2019 for the first time in 11 months. The IHS Markit/CIPS UK Construction index for the month came in at 49.5, down from 50.6 in January:

IHS Markit/CIPS UK Construction PMI (Source: IHS Markit/CIPS)

  Construction PMI   Baseline
    • The drop in work was led by reductions in commercial building and civil engineering activity. In both sectors, the pace of contraction was the steepest since March 2018
    • Residential work was the best performing area of construction activity in February 2019 (13th consecutive month of growth)
    • Business expectations for the year ahead remain inside positive territory, but the degree of confidence eased to a four-month low and was well below the long-run survey average
    • Construction firms noted that delays to client decision-making had slowed progress of new project starts, which could create gaps in their future workloads
  • UK brickmaker, Ibstock, posted a near 20% rise in profits for 2018, making a pre-tax profit of £92.5m (2017: £77.7m). Chief executive Joe Hudson noted that UK brick demand continues to outstrip domestic supply capacity. In total, the UK market consumed 2.5 billion bricks last year – the highest level of consumption since 2007. Of these, 2.1 billion were supplied from domestic production or existing inventories and 400 million were imported.
  • A consortium called ‘The Advanced Industrialised Methods for the Construction of Homes’ (AIMCH) has been awarded £6.5m in funding from the Industrial Strategy Challenge Fund which will be used to “identify and develop offsite solutions” in an attempt to increase the rate of housebuilding across the UK. The three-year project is expected to lead to new design tools, advances in manufacturing, better near-to-market offsite systems and lean site processes.
  • The Government’s response to Sir Oliver Letwin’s review of house build-out rates is now well past its original end of February deadline. The report, which was published in October 2018, provided various recommendations such as requiring large development sites to offer a range of housing types and tenures. A response to the report is not now expected until later in the spring.
  • A new report called ‘Locate, create and innovate: London in a changing world’ has found that 37% of 450 senior leaders of large companies across the world view London as the best location for their global teams. Chris Hayward, chairman of the planning committee at the City of London, said he expects more tall towers to go up in the Square Mile over the next decade in order to cope with demand from overseas investors:

“I see a continued growth of buildings in the City over the next 10 years. We’re not Teflon-proof but there is still a huge global interest in the City.”

  • Lyn Sullivan, group chair of the Good Homes Alliance and member of the Green Construction Board, has called on the Government to require developers to publish information on the energy performance of the buildings they construct. She also said the Government needs to shift its focus from processes to outcomes to improve standards in the industry as it strives towards its goal of reducing the sector’s carbon emissions by 50% by 2025 (from a 1990 baseline).
  • New London Architecture’s 2019 London Tall Building’s survey has revealed that 76 towers with 20 storeys or more are due to be finished in the capital this year - up from 25 in 2018. The high number of expected completions in 2019 has been boosted by the fact that only half of the 50 towers that were due to be finished in 2018 actually completed. For more information on this report by the NLA, click here

UK Economy

  • Data from the British Retail Consortium showed that UK retail sales increased by just 0.5% in February compared with a 1.6% rise in the same month during 2018. Despite real incomes rising over the past year, consumers have been reluctant to spend this February. It is thought that Brexit is driving a shift in behaviour as discretionary expenditure declines.
  • The IHS Markit/CIPS UK purchasing managers’ index for services beat expectations in February, rising to 51.3 and up from the two-and-a-half year low in January 2019. However, employment intentions fell the fastest since November 2011 with respondents saying that Brexit and political uncertainty has encouraged delays to corporate spending.
  • Chancellor Philip Hammond is set to receive a multibillion-pound windfall for public finances in the Spring Statement as a result of buoyant income tax receipts. Mr Hammond has also promised to increase public spending if MPs approve Theresa May’s withdrawal treaty, paving the way for a smooth Brexit.
  • ONS data shows that net migration of EU migrants to the UK has slumped to its lowest level for a decade (57,000 in the year to September 2018). Meanwhile non-EU net migration to the UK was the highest since 2004 (261,000 in the year to September 2018).

World News

  • Whilst admitting that the odds of securing a US-China trade deal have grown, Goldman Sachs believes that at least some US tariffs could remain in place into 2020 and that these levies will only be removed as various commitments under the trade agreement have been met.
  • The US trade representative (USTR) has made a statement saying that India and Turkey no longer qualify as ‘beneficiary developing countries’ under Washington’s Generalized System of Preferences (GSP), which provides many low-income and emerging economies with preferential duty-free access to the US market for some of their exports. The USTR said New Delhi had failed to assure the US of “equitable and reasonable” market access while Turkey was now “sufficiently economically developed”.
  • According to the initial estimate, US GDP grew at an annual rate of 2.6% in Q4 2018 – beating average market expectations of 2.3%. Non-residential investment helped pick up the slack in the fourth quarter as other indicators softened. Consumer spending also proved resilient.
  • Italy is preparing to become the first G7 country to endorse a plan by China to finance and build infrastructure in more than 80 countries as part of its ‘Belt and Road Initiative’. But the US and major European countries are concerned it favours Chinese companies, creates debt traps for recipient states and is being used to further Beijing’s strategic and military influence.
  • The OECD has slashed its Eurozone growth forecast, expecting GDP to grow by just 1% in 2019 and 1.2% in 2020 (previously 1.8% and 1.6% respectively). Germany and Italy were the recipients of the biggest downgrades to economic growth.

Commodities & Materials

  • In a recent report, Barclays said that they are retaining their bullish view on oil for 2019 and expect Brent to rise to $70 per barrel this year. However, they noted that they do see new downside risks, eg how OPEC responds to US policy decisions.
  • The prices of commonly used plastics have fallen sharply since last summer as a result of a surge in supply from new plants in the US and a fall in demand growth. China’s demand for polyethylene, used in a range of applications including packaging, is still growing, but the rate of increase dropped from 11% in 2017 to 6% last year, and is expected to slow further this year.

Announcements in the Construction Press

  • Persimmon has become the first UK housebuilder to make £1bn of annual pre-tax profit. The firm’s pre-tax profits climbed 13% in 2018 to £1.09bn, while its operating margins were also up significantly at 30.8%. Profits were boosted by the Government’s Help to Buy equity loan scheme which was used for roughly half of its sales.
  • Intu has begun the search for £750m of debt financing that will be secured against its major asset, the Trafford Centre in Manchester. The asset, valued at £2.1bn, currently has £1bn of debt secured against it. Securing fresh debt is part of Intu’s refinancing plan, which aims to bring down the cost of debt incurred by the asset from 6% to around 3.5%.
  • Westminster City Council is set to approve a £743m five-year housing investment following the removal of the ‘Housing Revenue Account’ (HRA) cap. The Government removed the long-standing cap on how much councils can borrow against their HRA in October. The cash will be used to fund affordable housing, regeneration and associated debt redemption.
  • Chris Hayward, the chairman of the City of London’s planning and transportation committee, has said that Crossrail is hoping to announce a new opening date for the railway in the second quarter of this year.
  • According to data gathered by the Builders’ Conference, in 2018 Kier won 171 construction contracts with a total combined value of £2.8bn. Kier appears to have maintained momentum into 2019. In the first two months of 2019 Kier has already won £1.4bn worth of new construction business from 67 different contracts - 45 of these were signed in February alone.
  • Following a Competition and Markets Authority (CMA) investigation, five fit-out contractors have received fines totalling more than £7m for breaking competition laws. Each company has admitted to participating in “cover bidding” in competitive tenders, agreeing with each other to place bids deliberately intended to lose the contract, thereby reducing the intensity of competition. These cover bids affected 14 contracts with a variety of customers, including a City law firm to a further education college.
  • TfL has said that work at Crossrail’s Bond Street station “could slip to late 2019 or even beyond”. The disclosure came from the recently published minutes of TfL’s last programmes and investment committee meeting. Elizabeth Line services were originally due to be running through Bond Street station from December 2018.