3Rd December 2020 Construction Update 780 Px Web Banner

UKGBC publishes new strategic guidance to help deliver net zero buildings

CONSTRUCTION

  • The UKGBC has published new strategic guidance document called ‘Unlocking the Delivery of Net Zero Carbon’ to help support construction deliver net zero carbon buildings. It is intended to assist developers and project teams set strategies at the outset of a project and streamline delivery. The new guide identifies 17 barriers that are likely to emerge through RIBA Stages 0-7 and provides associated opportunities for how these can be overcome. The guidance builds on a previous UKGBC publication which modelled a commercial office and residential build to understand the cost implications of reaching various embodied and operational carbon targets.
  • The ONS’ construction output price indices (OPI) – which provide an estimate of input cost inflation (ie materials, plant and labour costs as well a mark-up for profit) within the construction industry – indicates that, between March 2020 (the month in which national lockdown measures were first implemented) and September, input cost inflation for ‘All Construction’ rose by 0.5%. During this period, input cost inflation rose the most in the late spring and early summer months when strong demand for building materials outstripped supply. However, in the current tight tendering market, higher input cost inflation is not fully feeding through into tender pricing as there is limited headroom to raise prices.
3Rd December Graphs For Web
  • Homes England chief executive Nick Walkley said that the quango will increase the proportion of homes it expects to be delivered using offsite and prefabricated methods of construction. Homes England, which administers the government’s £12bn affordable homes programme and the Help to Buy scheme, is looking to expand its strategic partnership programme for delivering affordable homes with local authorities and the private sector. Walkley said increasing the industry’s take up of MMC was a core aim of the agency over the coming years and that it will “ratchet up” expectations of those receiving funding. He continued, saying:

“Getting to scale around the modernisation of the way we build homes is absolutely critical. The time for talking, the time for small-scale pilots is over. We see [pre-manufactured product requirements] as absolutely essential to modernising the industry and delivering the kinds of homes that will be fit for the future."

  • The chief executive of the Infrastructure and Projects Authority (IPA) Nick Smallwood has said that vague objectives and a lack of discipline within government departments had led to challenges in delivering public mega-projects on time and on budget. Speaking to the Public Accounts Committee, Smallwood said:

“I think ministers and departments love to keep options open. We introduce a lot of change without discipline controls and late changes can kill a project.”

He said that all too often, departments develop two or three options when developing an outline business case for major projects, leading to a lack of “vigour” on the preferred option with choices on what the actual intended outcome of a project is being made too late.

  • Rishi Sunak unveiled his comprehensive Spending Review at the end of November. As part of it, the chancellor promised to invest in UK infrastructure, increase commitments for housebuilding, deliver on net zero and introduce a new UK infrastructure bank. Details were also unveiled about the Government’s school and hospital building programme. The announcement of a national infrastructure bank has received a warm welcome across the industry. CBI chief economist Rain Newton-Smith said the chancellor had:

“...made some bold autumn decisions to power a spring recovery...With the right remit, the bank has the potential to crowd in the private finance that will be crucial to delivering these new projects.”

  • Deloitte’s latest London office crane survey revealed that starts on site in central London collapsed by 50% between April and September 2020 compared to the last six months. Just 2.6m sq ft began in the period as London entered a “state of suspension as business occupiers pause[ed] to reflect on what the future of working [would] look like and how this might impact future workplace requirements”. In all, 15.1 million sq ft is currently under construction with nearly half of that – 7.3 million sq ft – going on in the City of London. Deloitte said that 86% of the developers surveyed believed that weak tenant demand was the major obstacle to starting any new development. According to Mike Cracknell, director at Deloitte Real Estate, until there is more clarity about occupiers’ office plans, developers will hesitate to embark on new projects, particularly speculative ones.

CONTRACTOR NEWS

  • British Land has submitted plans for a 3XN-designed 37-storey office tower at 2 Finsbury Avenue in the Square Mile. The two existing buildings at 2-3 Finsbury Avenue will be knocked down and replaced with a design that responds to the evolving occupier and workplace requirements. As well as the taller East tower, the revised scheme will feature a smaller, 20-storey West tower with the pair linked by a 13-storey podium that will contain green spaces and communal areas. They will include flexible workspaces that cater for individual and collaborative work as well as spaces for socialising. A best practice approach to sustainability, workplace design and inclusion will be taken and the design is being developed with the goal of being net-zero carbon in both its construction and operation. G&T is providing Project Management services on the scheme.
  • M&E contractor T Clarke has said that its forward order book has increased to £422m according to its latest trading update – 17% higher than at the same point in 2019. The firm also said that it continues to trade in line with expectations for 2020 and anticipates revenue for the year to be £240m (2019: £334.6m). It noted that during the second half of 2020, the company has been successful in winning new projects from clients across a wide range of sectors, but particularly the Healthcare and Technology sectors. The firm is on course to achieve margins of 3% during the period thanks to its strategy of focusing on projects and markets that meet its margin and growth criteria.
  • Foster & Partners has submitted plans for a 22-storey development on Tooley Street at the southern end of London Bridge. Replacing a 1960s building on a 0.69ha site, developer CIT said the new stepped 46,200m² ”workplace and commercial hub” will be a net-zero carbon office. The design proposes jacking up the building to create a “park” at ground level - a new landscaped public realm providing a vibrant mix of uses. CIT’s development managing director, Steve Riddell, said more than 85% of the site would be dedicated to “public open space” including three landscaped squares with seats and event spaces surrounded by kiosks and art installations.
  • Kier has signed a £106m deal with developer Concord London for the mixed-use scheme at Moxon Street (now known as Marylebone Square) in central London. The scheme will involve turning a former car park in upmarket Marylebone into a luxury retail and residential space. The nine-storey building will include 54 high-end apartments and 25 affordable apartments, along with retail, restaurants and a community hall on the ground and lower ground floors. The high-profile win has been described as a tonic for Kier in the central London market after missing out on British Land’s Norton Folgate scheme, opposite Principal Tower, last summer. G&T is providing Quantity Surveying and Employer's Agent services on the scheme.

COMMODITIES & MATERIALS

  • The latest Builders Merchants Building Index (BMBI) report shows sales were up 8.3% in September compared to the same month in 2019. Overall sales in Q3 2020 also increased by 1% on the same period last year, and soared by nearly two thirds (63%) compared to Q2 during the height of the lockdown when many merchants were closed. Landscaping and PPE sales were significantly higher in Q3 2020 compared to the same quarter last year. However, heavy side building materials (eg concrete and steel), typically used during earlier stages of construction, are still seeing a significant slump with sales lagging by 16.1% in Q3 2020 compared to the same period last year.
  • Copper prices have hit a seven-year high after rallying strongly this week. Benchmark copper prices on the London Metal Exchange hit $7,719 a tonne, the highest level since March 2013, after readings on manufacturing activity in China and South Korea surpassed market expectations. The price of the metal has risen by 25% this year, boosted by supply disruptions, hopes for a wave of “green” economic stimulus and China’s rapid recovery from the pandemic. China has imported record amounts of refined copper this year to meet commercial demand. Analysts at Goldman Sachs have indicated that the current price strength is not an irrational aberration, rather it is being viewed as the first leg of a structural bull market in copper.

UK ECONOMY

  • According to the OECD’s latest economic outlook, by the end of 2021 the UK economy will still be 6.4% smaller that it was in the fourth quarter of 2019 – lower than all other leading economies other than Argentina. According to the Paris-based organisation, the world economy will on average regain the lost output from the COVID-19 crisis by the end of 2021, but that the UK would be far behind the pack. Although the UK government has spent more than most other countries in supporting households and companies through the economic lockdowns, the OECD’s chief economist, Laurence Boone, noted that such generosity was not generally associated with better outcomes internationally. She said:

“A striking feature of the outlook is the absence of correlation between the extent of fiscal support and the resulting economic performance...not all measures have been used wisely.”

  • UK chancellor Rishi Sunak revealed in his spending review that the pandemic would raise government borrowing this year to £394bn – a peacetime record. In the spending review, the chancellor also announced updated growth forecasts from the Government’s independent forecaster (the office for Budget Responsibility, or the ‘OBR’). The OBR said the UK economy is on course for an 11.3% contraction in 2020, the steepest for more than 300 years. A further large hit is expected if ministers fail to negotiate a free trade agreement with the EU before the end of the year.

GLOBAL ECONOMY

  • A measure showing financial market expectations for future US inflation has risen to its highest level in 18 months, as investors anticipate a robust economic revival in short order given the recent vaccine breakthroughs. A swap rate that measures expectations for the average level of inflation over five years, five years from now, has jumped to 2.2% — above the 2% inflation target that the US Federal Reserve has persistently failed to achieve over the last few years. The potential rebound in economic growth is expected to pave the path to higher consumer price inflation. However, the FED says it will allow future inflation to run above the 2% target to make up for earlier undershoots.
  • According to the IMF, the second wave of coronavirus-related lockdowns in Europe poses “a considerable risk” to the Eurozone economy. It said that recent progress on vaccines will not deliver a recovery in the near future and that the bloc will need further monetary and fiscal support from the European Central Bank. The Eurozone economy contracted by a record 16% in the first half of the year, before rebounding by 12.6% in Q3. However, output in Q4 is likely to be weaker than expected according to the IMF as “rising infections and reimposed lockdowns have damaged confidence and lowered mobility”.