5 June

Market Research Bulletin: Latest London Crane Survey shows a rise in office space under construction

CONSTRUCTION

  • Deloitte’s latest London Crane Survey noted that whilst the volume of office construction work in London is facing a potential slowdown due to the ongoing uncertainties surrounding Brexit, total office space under construction actually rose by 12% compared to the previous survey (published in Q3 2018) to 13.2m sq ft – considerably more than the long-term half-yearly average of 10.5m sq ft. King’s Cross saw a surge in space under construction whilst the City turned to refurbishments.

Volume of Office Space under Construction in London by Submarket (Q1 2019 v Q3 2018) (Source: Deloitte)


  • The UK Government has told construction firms that EU workers will be able to come to the UK in the event of a no-deal Brexit. Immigration minister Caroline Nokes confirmed that whilst the Government is still consulting on permanent changes to the border regime after the transition period ends on 31st December 2020, contractors will still have access to EU labour from 31st October 2019. She said:

“...there is not going to be a cliff edge [for the availability of EU labour] – it’s not like the borders are suddenly going to be shut on the night of the 31st October in the event of a no deal.”

Caroline Nokes, Immigration Minister
  • According to the latest RIBA Future Trends survey, sentiment among London architect practices slumped into negative territory from a score of 0 in March to -7 in April. Architects across the capital have become increasingly despondent about their pipeline of future work, with a lack of clarity around Brexit being blamed for uncertainty in the marketplace.
  • The British Constructional Steelwork Association (BCSA) has warned that if British Steel cannot find a buyer, contractors will have to adapt to fluctuations in the price of steel as more imported product is used from European mills. Sarah McCann-Bartlett, the Director General of the BCSA, said:

“The pricing is going to be more affected by exchange rates – steel prices are always affected by the price of iron ore and scrap – but, more significantly, contractors will be exposed to [these] changes in exchange rates.”

Sarah McCann-Bartlett, BCSA
  • Crossrail Chief Executive Mark Wild has revealed that there are approximately 250,000 tasks remaining on the baseline schedule of the Crossrail project. Wild also confirmed that the amount of software development required on the project was the reason there was still so much variability in the opening date window (confirmed to be between October 2020 and March 2021) despite the detailed plans.
  • Shadow Cabinet Office minister Christian Matheson has called for construction firms that have been involved in blacklisting construction workers (and have failed to accept their wrongdoing and compensate those workers for that treatment) to be banned from bidding for work on the £4bn restoration and renewal of Parliament.

UK Economy

  • The Confederation of British Industry (CBI) has sent an open letter to MPs warning that the next prime minister must seek to avoid leaving the European Union without a Brexit deal, noting that smaller businesses would struggle to cover the costs of preparing to leave without a deal. The CBI said:

“Short-term disruption and long-term damage to British competitiveness will be severe if we leave without one. The vast majority of firms can never be prepared for no-deal, particularly our [small and medium-sized] members who cannot afford complex and costly contingency plans.”

Confederation of British Industry
  • UK retail sales continue to grow, rising by 1.8% in the three months to April 2019 compared to the previous three months. The strong performance was largely driven by record online purchases, whilst department stores suffered.
  • Consumer price inflation rose at an annual rate of 2.1% in April after a 1.9% increase in March. The rise, partly due to higher energy bills, puts inflation above the 2% target set by the Bank of England.
  • The UK Government borrowed £5.8bn in April – £0.03bn less than in April 2018 and in line with expectations. April 2019’s figure is the lowest April borrowing figure since 2007. With UK public sector new borrowing in the 2018/19 financial year at its lowest in 17 years, the UK’s public finances are in decent shape and may give the Chancellor some room to manoeuvre.
  • The pool of potential Conservative leadership candidates continues to grow. Theresa May will step down on Friday 7th June and so far 13 Conservative MPs have put themselves forward to succeed her. After nominations close (believed to be the week commencing 10th June), all 313 Conservative MPs will vote for their preferred candidate in a series of polls that will whittle down the contenders one by one.

World News

  • US President Donald Trump has begun his state visit to the UK. Despite the UK being at a point of heightened political weakness and uncertainty, both the US and the UK will want to find ways to strengthen their ‘special’ transatlantic relationship.
  • China has accused the US of “resorting to intimidation and coercion” as Wang Shouwen, the deputy head of Beijing’s negotiating team, said that:

“China-US economic and trade consultations have been severely frustrated by the US tariff increases and [Washington’s] abuse of export controls by including Chinese companies on the [unreliable] entities list.”

Wang Shouwen, Vice Minister for Commerce
  • Analysts at Goldman Sachs have turned negative on their assessment of corporate America for the first time in two years. The Goldman Sachs analyst index — based on a monthly survey of Goldman equity analysts’ assessments of business conditions in various sectors — dropped to a two-year low of 49.2 in May, below the 50 mark that separates expansion from contraction, as the trade dispute between the US and China escalated.
  • China increased the value of subsidies given to domestically listed companies to record levels in 2018 in an effort to help them weather the country’s economic slowdown. Payments by Beijing and local governments to listed companies rose 14% year-on-year to Rmb153.8bn ($22.3bn) in 2018. This comes as Washington, as part of its trade talks, tries to force Beijing to stop state support for the corporate sector.
  • Manufacturing in the Eurozone contracted in May as producers grapple with the escalating US-China trade war and a slowing global economy. The flash manufacturing reading, which gives an indication of broader export sentiment, hit a two-month low of 47.7, just below April’s reading of 47.9.

Commodoties & Materials

  • Brent crude lost more than 10% in May, falling below $65 a barrel. The fall comes amid tensions over the worsening US-China trade war. However, Saudi Arabia, the de-facto leader of OPEC, sought to stem the price slide with assurances that the group of oil producers, together with Russia would, continue managing global crude supplies to avoid a surplus.
  • In an effort to consolidate China’s steel sector, boost efficiency and strengthen its International competitiveness, China’s largest steelmaker (China Baowu Steel Group) intends to buy a majority stake in a smaller domestic rival (Magang Steel). The two companies had a combined crude steel output last year of 87m tonnes, surpassing total US steel output of 86.6m tonnes. In tandem with consolidating the sector, China has shut small, polluting and inefficient mills to address a long-term steel glut.
  • Luxembourg-based ArcelorMittal, the world’s biggest steelmaker, said it would cut European production for the second time in a month as weak demand and high quantities of imports continued to take their toll. The decision comes amid worries of global oversupply as mills in China churned out the highest monthly amount of steel on record in April 2019.

Announcements in the Construction Press

  • Places for People, one of the UK’s biggest housing associations, has agreed to buy 750 factory-built homes in a £100m deal. The investment – the largest made by a housing association in the UK – will help accelerate the delivery of homes and cut costs.
  • Kier’s shares fell 40% on 3rd June after it issued a warning that profits would be around £40m lower than expected. The company’s unscheduled trading update said that it expected underlying operating profit for the year to June 2019 to be £129m – down from analysts' previous forecasts of £169m. The update also warned that debt would be significantly higher than expected, raising concerns that the company would need a second rights issue just months after investors shunned a £264m emergency cash call.
  • Bovis Homes has published a statement revealing that it had offered £950m for rival Galliford Try’s housing business, which would have been paid for with new Bovis Homes shares. However, Galliford Try rejected the offer, arguing it was too low. The proposal came two years after full merger talks between the two companies failed.
  • A Future Skills report published by the Construction Leadership Council (CLC) has encouraged contractors to employ more people in-house, as firms would be more likely to invest in the training and development of directly employed workers, in turn boosting productivity. The CLC expressed concern over future skills shortages, pointing out that, in the face of a £600bn construction pipeline, 30% of the industry’s workforce is set to retire in the next decade.
  • A team lead by Bam Nuttall has been chosen by Transport for London as the preferred bidder for the £1bn Silvertown Tunnel. Work on the east London scheme, which was given the final go-ahead last year, will begin towards the end of 2019. The tunnel will link the Greenwich Peninsula and the Royal Dock and aims to eliminate the congestion and reduce the environmental impacts caused by miles of standing traffic around the Blackwall Tunnel area.
  • Urban Splash has been appointed to build more than 400 homes in Cambridgeshire using modern methods of construction (MMC). The development will be one of the largest MMC sites in the country, with the homes being built at Urban Splash’s factory in Alfreton, Derbyshire. Phases two and three of the scheme will see the development of 8,500 new homes including a new town centre, education and sporting facilities as well as leisure, office and commercial space, and is being led by Homes England.

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If you have any questions or have some news/information to contribute to the bulletin, please contact Michael Urie, or Nick Rowe