19Th November 2020 Construction Update 780 Px Web Banner

Architects say workloads are back to around 90% of pre-pandemic levels but say next few months will be critical

CONSTRUCTION

  • Average hours worked per week in UK construction rose by 15.4% in Q3 2020 compared to the previous quarter. However, despite the Government extending construction site working hours, hours worked were still 17.1% lower than a year ago. It’s likely that there are big differences between sub-sectors given that activity is currently higher in certain sectors, for example infrastructure and residential. Average hours worked in the construction sector have remained higher than the UK average number of hours worked over the past year.
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  • RIBA’s latest Future Trends survey revealed that architects are reporting that workloads are back to around 90% of pre-pandemic levels and that staffing levels have rallied to 97% of where they were a year ago. Although conducted before the second lockdown was announced, the survey results struck an upbeat tone with one-third of practices expecting workloads to increase in the coming three months and confidence slowly growing in practices of all sizes - especially medium and large practices. While confidence is rallying, London remained the least positive region with concerns about future profitability. Some 12% of practices in the capital expect falling profits to threaten their viability, compared to the national average of 6%. RIBA’s head of economic research and analysis said:

The next few months will be critical for UK architects. How the government negotiates Brexit, how the pandemic is managed and how government spending promises are realised will all directly affect architects’ workloads.

  • The latest IHS Markit/CIPS UK Construction PMI indicated a softening in expansion of activity in October, falling to 53.1 from 56.8 in the previous month - well below market expectations of 55.0. According to October’s survey:
    • House building was the best-performing sector, followed by commercial, while civil engineering activity contracted for a third consecutive month
    • New orders increased the most since December 2015 due projects starting that had been delayed earlier in the pandemic
    • Supplier performance deteriorated with another sharp lengthening of delivery times for construction products and materials
    • Rate of input cost inflation accelerated to its fastest since April 2019 as demand for building materials outstripped supply, resulting in higher average cost burdens
    • Efforts to reduce overheads and ongoing economic uncertainty contributed to a further decline in staffing numbers but the rate of job shedding was much slower than in Q2
    • Companies reported optimism towards their prospects for the next 12 months, despite concerns about the wider economic outlook
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  • The value of contract awards fell in October according to data from Glenigan. Nearly £3.8bn of new work was awarded in the month – a fall of nearly £600m compared to the previous month. Most work was awarded in the private housing sector which accounted for 17% of all work awarded in the month. The private housing sector also received the most approvals, securing permission for 329 schemes worth £1.9bn. The next most prolific sector (in terms of contract awards) was education with clients in this sector awarding firms £577.7m of work. The highest value deal across all sectors was the University of Oxford’s £202m deal to build its new life and mind building.
  • According to the ONS, construction output rose by 2.9% in September compared to the previous month. The latest figures marked the fifth consecutive month of growth. Only three sub-sectors saw a month-on-month contraction, namely public new housing, infrastructure and public non-housing. On a quarterly basis, construction output made a partial but strong recovery in Q3, with all sub-sectors rising from their Q2 lows and the ‘All Work’ figure rising by more than 41%. Despite the strong performance, output in Q3 2020 was still 12.6% lower than it was in the same quarter in 2019. However, output in the infrastructure sector has now fully recovered to pre-pandemic levels whilst private residential output has very nearly made a full recovery.
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  • ONS new order data for the construction sector also pointed to a robust increase in new work. All new work rose by 89% in Q3 2020 from the previous quarter – the largest quarterly rise on record. Only public new housing experienced negative quarterly growth (-1.7%). All other sub-sectors grew substantially which helped total new order values return to a level comparable with Q3 2019, increasing by 0.6% in the quarter-on-year series. The figures indicate that work deferred during lockdown has come back quite quickly but it remains to be seen how demand will be impacted in the short-medium term.

CONTRACTOR NEWS

  • Galliford Try has issued its AGM statement in which is said that the firm expects to return to profit in the first half of its financial year. After posting a pre-tax loss of £60m in its last full year figures (ie the 12 months to June 2020), the firm expects its average month-end cash position for the half year to the end of December 2020 to be at the upper end of its previous guidance of between £125m and £145m. It also said that it has continued to operate normally during the second lockdown and that productivity has returned to near normal levels.
  • Plans have been submitted for the new Moorfields Eye Hospital (called ‘Oriel’) on the St Pancras Hospital site in Camden. Works will include the demolition of seven buildings at the current site (including kitchen, post room and former mortuary) and replacing them with a part seven and part 10-storey building covering circa 46,500m². The new building will feature an eye care A&E department, outpatients, operating theatres, research areas, education space, cafe and retail spaces, admin and plant areas. A decision on the proposal for the relocated facility is due to be made early next year. G&T is providing Cost Management services on the project.
  • A scheme to revamp a Richard Seifert office block in Covent Garden has been given the green light. The existing 1980s block at 90 Long Acre, consisting of a grid of blocks up to 11 storeys high, will partially be demolished and regenerated. The scheme will include replacing the existing building’s corner block with a taller structure, filling two existing gaps in the building with two 10-storey infill blocks and adding two extra storeys onto another block. US architect Gensler will also transform an uncovered atrium at the centre of the scheme into a new glass-roofed public realm square, linked to the surrounding streets via two new alleyways. Gensler said that full demolition had been considered but was ruled out due to the “architectural merit” of the building and to reduce unnecessary carbon emissions.
  • Gateshead Council has approved plans for Ask: PATRIZIA’s £260m redevelopment on the Newcastle/Gateshead waterfront. Designed by HOK, the scheme includes a 12,500 capacity indoor arena, a major new convention and exhibition centre as well as a dual branded hotel. Over 12,500m² of new public realm will be transformed with new seating areas and cycle provision. The new arena will also feature two hotels, bars, restaurants, car parking and large areas of public realm. Main contractor Sir Robert McAlpine will start enabling works by the end of the year with main construction work beginning next March. The new complex is set to open in 2023. G&T is providing Cost Management services on the project.
  • The green light has been given for a £200m office redevelopment in Berkley Square, Mayfair. AHMM is behind the proposals to replace Lansdowne House (a post-modern office block originally built in the 1980s) with a new commercial building that were approved by Westminster council this week after two years of consultation. It is being upgraded to feature 10 storeys of office space running across 225,000 sq ft. Developer CO—RE said the scheme will have 14,000 sq ft of retail and restaurants on the ground floor while public realm improvements are also planned. The developer said the new Lansdowne House is designed to last at least 100 years and to achieve the highest possible standards for sustainability and wellbeing – BREEAM rating ‘Outstanding’ and WELL Platinum.

COMMODITIES & MATERIALS

  • AIM-listed builder’s merchant Brickability said it was experiencing a “V-shaped” recovery driven by demand for materials from housebuilders. The firm returned to profit in May and has remained in profit each month since – something which its order books suggest will continue. Separately, insulation and envelope supplier Kingspan said that it has also seen a surge in materials demand as a result of customers acquiring materials before any anticipated cost inflation in the coming months. Its recent trading update noted that after seeing raw material price deflation in the early part of Q3, raw material costs are currently “on the rise at present”.
  • The British Constructional Steelwork Association (BCSA) has said that the structural steel sector has been hit by setbacks and postponed orders caused by Brexit and COVID-19 this year. However, its outlook for 2021 and beyond anticipates buoyant growth. The BCSA forecasts a 12.1% increase in demand for structural steel in 2021 followed by a further 7.1% increase in 2022. Although its forecasts comes with caveats about the assumptions that have to be made regarding COVID-19 and Brexit, the BCSA predicts:
    • 5.4% fall in steel demand in the commercial sector in 2021 (and -6.2% in 2022) as more people find themselves working from home
    • Manufacturing and warehousing will require greater capacity so there will be strong demand in these sectors (eg industrial shed demand is forecast to rise 12% in 2021 and 12.3% 2022)
    • Real boost to come through public sector spending on health, education, infrastructure and even prisons (7.8% rise in 2021 and a further 9.3% rise in 2022)
  • Anglo-Australian miner BHP and China Baowu Group (China’s biggest producer of steel) have signed a memorandum of understanding focused on decarbonising steelmaking – an industry that is currently estimated to be responsible for up to 10% of global greenhouse gas emissions. Under the partnership BHP will invest $35m in low-carbon steelmaking technologies and share technical knowledge with Baowu, one of its biggest customers. Under the MoU, the deployment of carbon capture, utilisation and storage in the steel sector will also be investigated at one of China Baowu’s production bases. This follows an announcement in September where BHP pledged to develop technologies and approaches to make steelmaking 30% less carbon-intensive and shipping 40% less intensive.

UK ECONOMY

  • The UK economy expanded by 15.5% in the three months to September – the fastest pace of growth on record. However, output was still below pre-pandemic levels with the economy 9.7% smaller than it was in Q4 2019. The reopening of the economy after the first national lockdown meant that all sectors of the economy (construction, manufacturing and services) expanded in the period but the rate of expansion slowed towards the end of Q3. Following a record fall of 35.7% in Q2, the construction sector grew by 41.7% in Q3. However, output still remains 7.3% lower than it was back in February 2020.
  • UK unemployment rose 4.8% in the three months to September. According to the ONS redundancies climbed to a record high of 314,000 between July and September, a rise of 195,000 from the previous year and 181,000 from the previous quarter. The figures reflect a wave of job cuts made as the Government tapered wage support for workers furloughed under its Job Retention Scheme, which had originally been due to close at the end of October, but has now been extended until the end of March 2021.

GLOBAL ECONOMY

  • Three of the world’s top central bankers (Jay Powell, Christine Lagarde and Andrew Bailey) have said that the recent coronavirus vaccine breakthrough would lift the uncertainty weighing on the global economy. However, each noted that significant uncertainties and challenges remained. Jay Powell, chair of the US Federal Reserve, said that is was, “too soon to assess with any confidence the implications of the news for the path of the economy”, stressing that the economy was likely to be fundamentally transformed by the pandemic. Christine Lagarde, president of the ECB, said that fiscal and monetary policies will be needed to help bridge the gap to a recovery so that so there is as little lasting damage as possible. BoE Governor Andrew Bailey said the breakthrough strengthened the central bank’s view that the long-term restructuring needed after the pandemic will be more modest than in the 1980s or 1990s.
  • High-frequency indicators and alternative economic data suggests that the latest wave lockdowns implemented across Europe in recent weeks has had less of an impact on the wider economy than when the pandemic first hit in the spring. The data, which is less comprehensive and reliable than official data, shows that while consumer services activity has been hit hard, more people are continuing to travel to work than they did in the spring. Manufacturing is still operating and building sites have remained open in most countries. Governments across the Eurozone economy appear to be focusing largely on keeping economic activity going while curtailing recreation and non-essential retail in what some have dubbed a ‘lockdown of fun’.