Mrb 3Rd March

Market Research Bulletin: Architects' workload expectations rise with less political uncertainty according to report

CONSTRUCTION

  • The total value of construction contract awards in January 2020 was £5.5bn according to Barbour ABI - an 18.5% increase on December 2019 and 2.1% higher than in January 2019. Its regional analysis showed that London maintained its lead, accounting for 32.5% of all contract awards. This was followed by Yorkshire & Humber, which took a 26.6% share thanks to the £2bn infrastructure project - the Dogger Bank Creyke Beck 1.4GW offshore wind farm.
  • New analysis by the Local Government Association (LGA) has revealed that 2,564,600 new housing units have been granted planning permission by councils since 2009/10 while only 1,530,680 have been completed. That's a completion rate of just 60%. The LGA said that the backlog of unbuilt homes showed that council planning departments were not to blame for any housing shortage, as housebuilders – and occasionally ministers – generally assert.


Planning Permissions
  • RIBA’s Future Trends report – a sentiment survey measuring confidence among architects – recorded its biggest ever month-on-month increase in January. Architects’ workload expectations rose by 19 points between December 2019 and January 2020 as practices felt that the political stability brought by the election result would have a positive impact on workloads. However, despite the growth in confidence, RIBA’s head of economic research and analysis, Adrian Malleson said:

“Until trade agreements with the EU have been crystallised and government spending plans have been made clear, we can continue to expect reports of a competitive market and hesitation on the part of clients.”

  • Independent London mayoral candidate Rory Stewart is promising to build 250,000 homes in the capital within five years. He has also threatened developers with a ‘use it or lose it’ ultimatum for developers that sit on land with planning permission. He said there were dozens of sites that are currently sat idle with capacity for 200,000 units and that have land and planning permission.
  • The Mineral Products Association (MPA) has launched a new lobbying vehicle called ‘UK Concrete’ in order to promote concrete’s benefits and persuade politicians, the media and the public of the advantages of choosing concrete despite its significant contribution to embedded carbon content. Director of UK Concrete, Chris Leese said:

“Part of our new role will be to highlight the progress the industry is already making to lower concrete’s carbon footprint, through the development of materials that allow us to build faster and more cost effectively, and showcasing the benefits of using concrete for a sustainable built environment throughout the UK.”

  • The Chartered Institute of Building (CIOB) has published a report arguing that the construction industry contributes more to the UK economy than the ONS currently estimates. Officially, as currently measured, construction contributed £116.3bn to the UK economy in 2018. But the CIOB’s report identifies another £98bn of construction sector activity that is not included in the official statistics such as the supply of products, materials plant and equipment. Architecture, surveying, engineering design or other professional services are also not included at present.


UK ECONOMY

  • The UK 2070 Commission has published a report saying that the Government would need to spend at least £1 trillion over 20 years and devolve power out of London in order to ‘level up’ the country. Leader of the Commission and former civil service chief Bob Kerslake said the Government must match its rhetoric with money and policies in order to close the widening and “enormous” economic gap.
  • It is believed that new chancellor Rishi Sunak will delay some of the Government’s biggest decisions on tax, spending and borrowing until the autumn Budget. The chancellor acknowledged that growth forecast downgrades and the COVID-19 outbreak have created a difficult economic backdrop for the upcoming Budget.
  • The flash IHS Markit/CIPS composite purchasing managers’ index, a survey of business executives in UK manufacturing, construction and services sectors, remained unchanged from January’s final reading at 53.3. The index shows that UK business activity expanded at a steady pace in February, suggesting that a post-election economic bounce could continue. However, manufacturers are seeing early signs of disruption to export sales and business operations due to the ongoing COVID-19 outbreak.


WORLD ECONOMIC NEWS

  • The difference between the yield on three-month Treasury notes and benchmark 10-year US Treasuries widened to -18 basis points last week as the spread of COVID-19 prompted another flight to the safety of government debt. As a result, the US yield curve was its most deeply inverted since October 2019. A yield curve inversion, where longer-term yields fall below those on short-term notes, has preceded every recession of the past 50 years, so it has become a must-watch indicator for traders.
  • The COVID-19 outbreak has caused significant global supply chain disruption and is likely to have a considerable effect on global economic growth. Global stock markets have seen large falls in response to the outbreak. China, which accounts for 17% of global GDP, is a global supply chain hub so disruptions there undermine output elsewhere. Oxford Economics warned that the spread of the virus to regions outside Asia would knock 1.3% off global growth this year, the equivalent of $1.1 trillion in lost income.


COMMODITIES & MATERIALS

  • The International Energy Agency (IEA) expects oil demand to grow at its slowest annual rate since 2011 this year as the COVID-19 outbreak hits oil demand in China. In its monthly oil market report, the agency estimated that oil demand in 2020 would fall from 1.2m barrels per day (b/d) to 825,000 b/d as China, the world's biggest crude importer, continues to quarantine millions of people and shut down transport and services.
  • Point-of-sale data from the Builders Merchants Federation (BMF) indicates that its members have endured three consecutive quarters of negative sales growth. Average sales per day in Q4 2019 were 5.3% below the previous quarter and across 2019 as a whole four product categories saw sales values fall: tools (-6.3%), timber and joinery (-1%), heating and electrical (-0.3%) and heavy building material (-0.1%). However, BMF CEO John Newcomb said:

“Word on the merchant grapevine is that January trading was more positive, but with storms Ciara and Dennis in February, we are unlikely to see a Boris Bounce just yet.”

  • The Minerals and Products Association (MPA) has secured a £6m government grant to trial hydrogen and plasma technology to reduce carbon emissions in the production of cement and lime. The grant follows a 2019 feasibility study which found that using 70% biomass, 20% hydrogen and 10% plasma energy could be used to eliminate fossil fuel CO₂ emissions from cement manufacturing. The MPA said that if the trials show the production process to be technically and financially viable, this kind of fuel switching could yield emissions savings of as much as two million tonnes of carbon dioxide per year at 2018 production rates (0.6% of UK greenhouse gas emissions), if fully implemented across the UK cement industry.


ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

  • Laing O’Rourke has been named as the preferred bidder for Everton’s new £500m, 52,000-seat venue, appointed to the design and build job under a pre-construction services agreement (PCSA). The new stadium at Bramley-Moore dock will include a home end, a steep stand able to house 13,000 fans, along with a steel and glass roof and a brick base. Work on the new stadium is expected to start later this year, subject to planning consent, and is expected to take three years. G&T is providing Project Management services on the scheme.
  • Taylor Wimpey recently announced that operating profit margins fell from 21.6% to 19.6% largely due to rising construction costs and the amount of money it had invested in the business such as improving customer care and increasing its production capacity. However, the firm said that although the political stability given by the general election result in December had boosted the market, volumes in 2020 are expected to be slightly lower as it focuses on driving margins back up.
  • Failure to consider the Paris agreement was “legally fatal” to the policy approving the third runway project at Heathrow. Transport secretary Grant Shapps has said the Government will not fight the Court of Appeal’s decision ruling the expansion of Heathrow illegal on climate change grounds. Instead, Shapps said that the Conservative’s manifesto made it clear that any Heathrow expansion must be industry led. Heathrow itself has confirmed that it will challenge the decision.
  • A recently published CBI report has made several recommendations to transform the construction industry, ranging from appointing a body to monitor the relationship between margin and revenue to suggesting that clients and contractors that cannot agree on a risk sharing position should use a gain and pain share approach to incentivise appropriate allocation of risk.
  • Edinburgh council has unveiled plans for a £1.3bn regeneration project to transform the city’s largest brownfield site into a new coastal town. The proposals include building 3,500 homes, a school, medical centre and new cycling and walking routes on the 140ha of former industrial land at Granton, north of Edinburgh. An outline business case will be submitted over the next year. G&T is providing cost consultancy services on the proposed scheme.
  • Fit-out contractor Styles & Wood plans to file for administration and will immediately cease activities. Its parent company, the Extentia Group, blamed unsustainable cash flow issues following a handful of large developer-led projects that were won on low margins. The news follows a difficult 2019 for Styles & Wood, which saw the company replaced on a couple of high-profile projects as well as the departure of several members of its senior management team. Craig Eastwood, chief executive of Extentia said:

“By nature, this type of work is complex with high revenues and low margins; a situation inherited by Extentia Group’s new leadership team who succeeded predecessors at the end of November 2019”