Construction work to the end of May 2021 up 5% on previous quarter

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  • Karan Bilimoria, president of the Confederation of British Industry (CBI) has suggested that the UK’s furlough scheme is narrowing the talent pool available to firms and contributing to shortages in industry. Latest official figures show that the JRS scheme was still being used by nearly 170,000 workers, or 13% of the construction workforce, at the end of April 2021. At the recent Recruitment and Employment Confederation’s annual conference, Bilimoria said there was a “perfect storm” of factors coalescing and he urged the Government to immediately update its shortage occupations list to include several new roles where employers are finding it difficult to recruit staff (eg bricklayers and welders). Bilimoria explained:

“During the pandemic, many workers from overseas left the UK to return home...The UK’s immigration system is also a barrier to hiring people from overseas to replace those who may have left. Meanwhile COVID has added major uncertainty. With some sectors locked down longer than others, experienced workers have moved to businesses that stayed open.”

  • With construction vacancies hitting a 20-year high (35,000 in the period between March-May 2021), demand for skilled workers appears to be outpacing supply. Employment levels in the sector have been on a general downward trend since Q1 2019 and there is a widening gap between employment levels and vacancies. This suggests that there is currently a strong demand for labour which cannot be met. This is perhaps a result of a portion of European labour returning home during the pandemic and the new Brexit immigration rules restricting supply. In the short-term, UK construction will have a small pool of redundant or furloughed workers to draw on but once exhausted, unless labour supply improves (or productivity levels increase) we’re likely to see higher wage-led inflation in the medium-term.
  • Glenigan’s latest Construction Review shows that construction work starting in the three months to the end of May 2021 was up 5% on the previous quarter. The average value of jobs starting in the quarter was £5.395m – a 49% increase on the whole of 2020. Contract award values also rose by 8% against the previous quarter, as did the value of underlying planning approvals. However, although construction growth was said to be heading back to pre-pandemic levels, Glenigan economics director Allan Wilen suggested that supply issues and the cost of materials could dampen the pace of growth across the sector.
  • Timewise, a flexible working consultant, has published the results of its ‘Timewise Construction Pioneers Programme’ – an 18-month guided initiative that saw shift patterns in on-site roles redesigned to enable more flexible working. Bam Construct, Bam Nuttall, Skanska and Willmott Dixon took part in the study and ran four pilot projects that tested whether it was possible to improve the wellbeing of those working on site through changing the hours and times of working, as well as considering home-based working, where possible. The report said all four firms reported no negative impact on budgets or timeframes, with some data suggesting that adjustments to working patterns could drive savings on labour costs due to enhanced productivity.
  • Germany is on course to become the leading country in Europe for BIM adoption according to Plan Radar’s latest Europe-wide ranking of BIM adoption. Around 73% of construction companies in the UK use BIM technology (compared to 70% in Germany) but the proportion of German developers using the technology has already edged ahead, with 80% in the country using the tech compared to 73% in the UK. The rate of adoption of BIM in Germany, which only started using the tech in 2006, has surpassed the adoption rate in the UK, which has been using BIM since the 1980s and has long been considered a pioneer in BIM. Since 2017, it has been mandatory to use BIM on all projects over €100m in Germany, whereas in the UK only state-funded projects are required to use it following a law introduced in 2016.

Client & Contractor News

  • Kier Group has started using artificial technology (AI) to help support its bids for new work. The technology, provided by the software organisation nPlan, will analyse programmes to identify where problems and delays are likely to occur and areas where savings could be made. Kier hopes the software will increase its bidding chances for new work by optimising its pre-construction programmes using active risk identification. The machine learning technology compares new projects with previous ones, using the data to increase the efficiency of the bidding process. Kier’s adoption of the technology comes at a time when the capacity of many contractor bid teams is struggling to keep up with the volume of new tendering opportunities.
  • Car manufacturer Nissan has unveiled plans to build a giant battery plant at its existing site in Sunderland that is expected to be operational by 2024. It is expected that the plant could make at least 200,000 batteries for EVs annually. The Government is helping to fund the Sunderland gigafactory project as part of its “green industrial revolution” agenda and has given around £100m to support the project. According to the FT, six companies (including Ford, LG and Samsung) are in talks with the Government and local authorities to build battery plants in the UK. While the UK government has established a £500m fund to help finance battery plants, the EU has assembled a €2.9bn war chest to help build a planned 38 gigafactories across Europe. Other than Nissan’s plant, only one other gigafactory has been disclosed in the UK: BritishVolt’s project in Blyth, Northumberland. Locally made batteries will be key in retaining the manufacture of new car models in the UK. Andy Palmer, vice chair of InoBat said:

“There’s a de facto competition between the UK and Europe, and whoever wins the gigafactories wins the auto business.”

  • JCB is experiencing unprecedented demand for its machinery, recently noting that it is seeing record orders for its construction products. With most new machines sold out until next year, JCB is aiming to recruit 500 new shop floor employees to help fulfil the tens of thousands of new machine orders that are currently sitting on its books. As the recovery continues to gather momentum chief executive Graeme Macdonald said, “We have never seen anything like this in the 75-year history of JCB.”
  • McLaren Construction has seen a string of new contract wins in its London region, recently securing more than £240m of work in the commercial and hospitality sectors. McLaren has been appointed to RIU Hotels & Resorts Group’s first development in the UK – a 441-room scheme near Victoria station and also the new Hoxton Hotel in Shepherd’s Bush. Yard Nine has also appointed McLaren to redevelop 50 Eastbourne Terrace in Paddington to create a new six-storey office complex with retail units and restaurants allocated on the ground floor. Its growing pipeline has sparked a major recruitment drive and as the economy picks up pace it is believed that McLaren will reveal a further round of contract wins in the coming weeks.
  • Developer British Land is pressing ahead with its first ever build-to-rent (BTR) scheme, three years after the project was put on hold. Phase two of the 136,000 sq ft Aldgate Place mixed-use scheme will start by the autumn, which will include 159 BTR apartments, 19,000 sq ft of office space and 8,000 sq ft of retail and leisure space. Phase one of the project (developed in joint venture with Barratt) was completed in 2017 but in 2019 British Land acquired the Barratt share of the JV, giving it control over phase two and residual ownerships in phase one, including retail units and car parking. Under phase two, work includes upgrading the public realm with increased biodiversity and a focus on health and wellbeing. Aldgate Place will also be a net zero carbon development with embodied carbon of around 620kg CO2e per m².

Materials & Commodities

  • The CLC’s latest product availability statement reveals that the recent issues relating to construction material shortages shows no signs of improvement and will likely persist into the second half of this year. The overall availability of products saw no change in June and the CLC explained that demand continues to “dramatically outstrip supply”. The CLC noted that record sales of building materials coupled with strong pre-orders and full pipelines of work are all putting enormous pressure on the supply chain which, in some sectors, has not fully recovered from the impact of COVID. Timber, roof tiles and some steel products continue to be in short supply, as is bagged cement and a number of additional products. Imported products are being particularly affected and all this is feeding into price inflation. The expectation is that high demand coupled with tight supply will sustain elevated prices throughout the year. The CLC recommended the following:
  1. Forward plan and ensure ongoing communication throughout the supply chain to manage expectations about any shortages or allocations
  2. Make allocation systems as fair and transparent as possible
  3. Provide customers with the information they require to plan and complete projects in a timely manner
  4. Contractors should maintain open communications with their customers regarding lead times, possible product substitutions and early notice of potential price increases
  • Housing Minister Christopher Pincher has told MPs that smaller housebuilders may get Government support if material shortages become an ‘ongoing and material obstacle’. Shortages will be factored in in determining the level of support it can offer housebuilders to help them retain a foothold in the market or break into the sector. His comments suggest that the Government wants to avoid domination of the market by a handful of national players. Pincher explained:

“We are examining the barriers that SME housebuilders face as part of our ongoing work to improve productivity and competition in the housing market and open the market up to smaller builders.”

  • A commodities Index called the S&P GSCI is on track for its biggest first-half gains since 2009. Half way through 2021 commodities have seen substantial gains, pushing the index 28% higher in the first six months of the year. Leading this year’s rise in major commodities is steel (with the steel CRU index futures HRNM21 up by more than 70% between January and 22nd June). The root cause of this unprecedented rise has been shutting down capacity during the early part of the pandemic and a pickup in demand. This has resulted in a “scarcity premium”. Meanwhile lumber prices have fallen and are up just 2% this year after dropping more than 30% over the last month. Building material shortages and supply chain logistics issues have slowed lumber consumption but prices have still more than doubled over the last 52 week period, indicating that there is not enough supply to satisfy demand.

UK Economy

  • In his annual Mansion House speech, Governor of the Bank of England Andrew Bailey said that the central bank was not “whistling in the wind” as inflation accelerates. While acknowledging that the BoE had underestimated the pace of the rebound in activity and price rises as the economy opened up, Bailey said the bank was not being complacent about inflation which rose from 0.4% in February to 2.1% in May. He said that evidence points to a temporary rise in inflation with periods of excess demand causing bottlenecks rather than something more persistent. Bailey made the following arguments to support his thinking on the economy:
  1. Supply is getting back to normal at the same time as demand so it’s likely that there will only be temporary imbalances in some sectors.
  2. Some of the inflation being measured is arising simply because prices fell a year ago so the comparison was with the depth of the first wave of the pandemic.
  3. Spending is likely to be directed at parts of the economy with spare capacity as patterns of demand normalised.
  • UK landlords face huge rent shortfalls as commercial property owners collected less than a fifth of what they were owed on 25th June, when advanced rents were due for the three months to the end of September 2021. Commercial property management platform Re-Leased said the 18% collection rate is the lowest recorded in a year. The rent collection rate at the last quarterly payment date (21st March) was 21%. Although some rent payments may trickle through in the coming weeks, the low take is concerning. Caleb Dunn, analyst at Re-Leased said:

“While there isn’t an immediate need to worry that the numbers are a few basis points down to last quarter, it does demonstrate that landlords are struggling with consistent liquidity — we’re still talking about a significant proportion of rent each quarter not being collected,”

With rent debt building, total arrears are estimated by industry bodies to be in excess of £6bn. Further stalls to fully reopen the economy has reduced the prospect of any rapid repayment of rent debt. Bans on evicting commercial tenants and pursuing them for unpaid rent have been in place since last March.

Global Economy

  • Eurozone inflation has fallen for the first time in nine months, dipping from its two-year high of 2% in March to 1.9% in June. According to Eurostat, the harmonised index of consumer prices in the bloc dropped due to slower price growth of energy and services but most economists expect inflation in the eurozone to resume its upward path in the second half of this year, taking it above the European Central Bank’s target of just below 2%. However, inflation is expected to fall back below the ECB’s target in 2022 due to the eurozone’s currently weak labour market, reducing demand-side inflation pressures.
  • UK exports to the EU have risen to near 2019 levels according to the latest ONS data. EU exports were down around 2% from the same time two years ago (pre-Brexit) – a considerably better performance than in January 2021, when exports to the EU were around 46% lower compared to the same month in 2019. Between January and April 2021 exports to the EU and to the rest of the world were down around 14% compared with the same period in 2019. However, because imports into the UK were down 21% over the period, the UK’s trade deficit dropped (from £63bn to £43bn). However, a Government spokesman said:

“...the impact of the COVID pandemic across Europe has affected trade and depressed demand and it is too early to draw any firm conclusions on the long term impacts of our new trading relationship with the EU.”