28 Feb

Market Research Bulletin: European Medicines Agency loses high court battle to cancel London Lease

CONSTRUCTION

  • Construction output increased by 0.7% in 2018 compared to the previous year – the lowest year-on-year growth since 2012. Additionally, All Work output fell by 14.7% in December 2018 compared to the previous month, largely driven by falls in repair and maintenance work (-19.2%).
Uk Construction Output
  • Interserve has announced that it will publish details setting out the full terms of its deleveraging plan next week. The company also revealed that it had received an outline proposal from rebel shareholder Coltrane Asset Management, "which it is considering". It added that it remained committed to achieving a "consensual" solution to a rescue deal.
  • At a recent industry conference, housing secretary James Brokenshire said that there ought to be as much focus on the communities in which new homes were being built as for the number of units being constructed:

Questions around the quality and design of the new homes we build will become more important. Housing can’t just be a numbers game

  • The Royal Institute of British Architects (RIBA) latest Workload Trends survey found that firms with more than 51 members of staff were significantly more pessimistic at the start of the year than they had been in December 2018. RIBA executive director Adrian Dobson said the slump in workload confidence among large practices was “a cause for concern”, noting that the lack of clarity about the Brexit process – and the potential for a no deal exit from the EU – was being cited by many firms as the biggest cause of concern.
  • The Construction Leadership Council (CLC) has called on the Government to review its proposed migration policy in the event the UK crashes out of the EU with no deal, including “significantly” reducing the current £30,000 annual salary threshold. Separately, the CLC has sent a letter to the construction minister laying out the industry’s biggest concerns ahead of Brexit.
  • Leeds City Council and United Living have submitted a planning application for a fully modular council housing and apartment scheme. The scheme will see 28 homes constructed in less than nine months, compared to an average construction time for a development of this size of nearly two years.
  • The Estates Gazette annual Global 100 list found that the world’s top 100 real estate companies now own more than $5.5tn of assets – 20% higher than a year earlier. Chinese real estate owners top the list. Whilst the number of North American real estate firms at the top of the list has dwindled, the region continues to dominate in terms of total portfolio size.


UK ECONOMY

  • UK GDP rose by only 0.2% in Q4 2018 – down from 0.6% in Q3 2018. The most recent figures make the annual growth rate (1.4%) the slowest growth rate since 2012. The ONS blamed falls in factory output and car production for the slowdown, among other factors.
  • The UK posted a record monthly surplus in its public finances in January 2019. The Government received £14.9bn more in revenue than it spent during the month – above market expectations of a £10bn surplus, and £5.6bn more than in January 2018. It meant that borrowing in the financial year-to-date was £21.2bn, the lowest for 17 years and 47% lower than in the same period last year.
  • Fitch, the credit rating agency, has put the UK’s AA credit rating on negative watch as a result of growing uncertainty over the outcome of the Brexit process. The move signals an increased likelihood of a downgrade. In the event of a no-deal Brexit, the UK faces a recession similar to that of the 1990s, with a 2% decline in GDP over 18 months, Fitch said.
  • The ONS reported that there were 167,000 more people in employment during the final quarter of 2018 than over the previous three-month period. The data suggests that Britain’s jobs market has so far been insulated from the effects of Brexit uncertainty and lower economic growth.


WORLD NEWS

  • The US has said that it would delay an increase in tariffs on $200bn of Chinese goods in light of the ‘substantial progress’ made in recent trade talks. The tariffs were originally scheduled to come into effect from 1st March 2019. If further progress is made the US administration will plan a summit to conclude any trade agreement.
  • The EU has threatened to retaliate if the US imposes import tariffs on European cars. The US commerce secretary recently submitted findings of an investigation into whether European cars pose a threat to US national security. The US president has previously threatened levies of as much as 25% on foreign-made vehicles.
  • The EU’s agriculture commissioner, Phil Hogen, said that the UK will struggle to conclude the same high quality trade deals as the EU due to its small size. He said:

Five hundred million customers will always resonate more with a third country when they want to do a trade deal with the EU, rather than 65m

Mr Hogan said the EU had 54 existing trade deals around the world and London would find they won’t be able to get the “same terms and conditions” when they have to revisit these agreements post Brexit.

  • International Trade Secretary Liam Fox has confirmed that the UK will not be able to roll over the EU’s trade deal with Japan in time for the scheduled date on 29th March. So far the UK has been able to finalise "continuity agreements" with just seven of the 69 countries and regions with which the EU has trade deals.


COMMODITIES & MATERIALS

  • London-listed miner Kaz Minerals said copper production rose by 14% in 2018 compared to a year earlier. The miner aims to double copper production following its purchase of a copper project in Russia last year.
  • After tumbling more than 30% in Q4 2018, oil prices jumped to a three-month high on Monday 18th February, as hopes for a US-China trade deal added to the optimism sparked by news that Saudi Arabia was cutting production more aggressively than expected.
  • Morgan Stanley has joined the likes of Citi and Goldman Sachs, turning bullish on copper. Morgan Stanley predicts 14% upside for the metal in 2019 as a supply-driven deficit emerges by the year end. The bank said that:


A year of weak grades at major operating mines more than offsets limited growth from green and brownfield projects, resulting in shrinking total mine production through 2019

ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

  • US bank Citigroup has struck a deal to buy its 1.2m sq ft Citi Tower in Canary Wharf for around £1.1bn. The sale is likely to make it one of the largest single-asset real estate transactions in the UK. The transaction is expected to take a number of weeks before completion.
  • The European Medicines Agency (EMA) has lost a high court battle against its landlord, the Canary Wharf Group, to cancel its long-term office lease in London so that it could relocate its headquarters to Amsterdam. The EMA argued that its £13m-a-year lease, which runs until 2039 with no break clause, had been ‘frustrated’ by Britain’s impending departure from the EU. In the ruling, Mr Justice Marcus Smith said that Brexit is “not a frustrating event” and that EMA remains obliged to perform its obligations under the lease.
  • Black Pearl, the subsidiary of Malaysian property development company IGB Corporation Berhad, is reviewing its options for its £1bn mixed-use development on Blackfriars Road. CBRE has been appointed to advise on funding and delivery options for the two-acre site, which received planning approval for the erection of six buildings ranging from five to 53 storeys.
  • Yorkshire-based developer Scotfield is seeking funding for an £85m mixed-use, build-to-rent scheme in Sheffield city centre. The development, which comprises of 479 flats and 10 townhouses, will be delivered in two phases and will include a gym, library, workspace and residents’ lounge.
  • Intu shares fell 10% on 20th February 2019 after the shopping centre landlord suspended its dividend and reported a 13.3% fall in capital values in its full-year results. The valuation fall also caused Intu’s debt to asset ratio to increase ahead of its target level. To help reduce its debt, Intu said it would look to make disposals.
  • Hammerson is considering more disposals and delayed starts as it posts a £267 million loss in 2018. The group aims to sell off a further £500m-worth of assets by the end of the current financial year, on top of the £570m it generated in sales during 2018.
  • Crossrail chief executive Mark Wild has said that work such as M&E on its London sites are still way behind schedule. In a letter updating the chair of the London Assembly’s transport committee, it was confirmed that more than half of the complex fit-out work on Crossrail’s central London stations still needed to be completed.
  • Laing O'Rourke plans to target more negotiated contracts as it seeks to lift margins to circa 5% and return the firm to profit after posting another year of losses. The private builder experienced problems with a PFI hospital contract in Canada. This, combined with the cost of refinancing its UK business, factored in heavily towards its £43.6m pre-tax loss.
  • Property investor Derwent London has posted positive full-year results which showed underlying earnings rising to 99.1p per share as net property and other income increased 12.8% to £185.9m. Chief executive John Burns said that, “Demand for Central London offices remains very active and we have been able to outperform the market through our development activities”.

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