- The IHS Markit/CIPS UK Construction PMI rose to 55.5 in November 2021, up from 54.6 in the previous month, indicating a robust and accelerated expansion of overall construction activity as commercial work rose the most since July.
According to the survey:
- New business growth hit a three-month high amid improving client demand
- The pace of job creation eased to an eight-month low
- The ‘Suppliers’ Delivery Times Index’ reached its highest level since April (suggesting the worst phase of disruption may have passed) but remained in negative territory due to port delays and a lack of haulage capacity
- Input costs rose again at a solid pace (although at the slowest rate since April thanks to falling timber prices), while operating expenses inflation slowed to a seven-month low
- The proportion of firms reporting longer delivery times fell to 47% in November, from a peak of 77% in June
- Builder optimism was somewhat flat due to high costs of building and firms struggling to stay competitive
- RIBA’s annual summary of business trends in the architectural sector found that practices were able to preserve profitability despite total revenues falling by 15% (from £3.6bn to £3bn) in the year to May 2021. Practices had to rapidly “respond to new client requirements, new markets and a need for new ways of working” in light of the pandemic according to Adrian Malleson, head of economic research and analysis at RIBA. Lower revenues was an inevitable impact of the pandemic and this meant that certain financial benchmarks turned negative. Average revenue per practice was lower at £4.7m (compared to £5.2m in 2020) but profits as a percentage of revenue were up (ie 12.6% in 2021 compared to 9.9% in 2020). This was, according to RIBA, driven by 50-<100 and 100+ practices whose median profits have increased. Diligent control of costs (particularly payroll costs) has helped maintain profits with the analysis showing that the reduction in Chartered Practices’ expenditure is greater than the loss of revenue.
Other interesting trends from the 2021 RIBA report include:
- Staff numbers have fallen. Whilst RIBA Chartered Practices employ 38,000 people, this is 11% fewer than last year
- Reductions of over 30% in revenue from work on offices, culture and entertainment, sports and leisure
- A downturn in revenue from international work that was felt particularly hard by practices with 100+ staff
- Chartered Practices are working on just as many jobs as in 2020 (although these may be smaller jobs) and made bids for more work than in 2020 while maintaining their competitive success rate
- Chartered Practices have pivoted to where the work is: one-off houses, domestic extensions and alterations. Revenue from those work sectors has increased by 3%, which is impressive compared with the 15% fall in revenue from all sources
- New analysis from Glenigan shows the value of overall project starts fell by 29% in the three months to October 2021 and were 17% lower than the same period in 2021. The value of ‘major schemes’ – those worth £100m or more – fell the most (-50% compared to the preceding quarter) while smaller projects (worth less than £100m) slumped by 16%. The downturn represents a temporary autumn slump following higher levels of construction activity over the summer period, according to Glenigan. Growth is expected to return in 2022 and there were some signs to support this - namely a 4% rise in the value of main contracts awarded in the last three months, the value of planning consents growing by 2% and the value of smaller industrial starts increasing by more than 40% compared to the previous three months. The hard-hit office sector also showed further signs of recovery, with the value of new starts rising 8%. Glenigan economic director Allan Wilen said:
“Tough times continue as disruptive global events continue to hit hard, however a gradual increase in contract awards and planning consents indicate momentum will soon start to revive.”
- Mace’s second annual carbon survey has shown there is a mismatch between business support for the carbon reduction agenda beyond their respective organisations and their corporate strategies. Although 97% of businesses support the agenda beyond their own organisation, just one-third of businesses have a carbon strategy in place for their property and estate portfolios. This suggests that firms aren’t doing enough to decarbonise their estates. However, 85% of organisations did increase their ‘carbon reduction efforts’ during the last year and 54% of the organisations surveyed changed or plan to change their business model in response to the climate emergency. According to the survey report:
- 68% of business leaders across the globe think the construction and property industries made more progress in carbon reduction in the past year than ever before
- However, 57% said that far more needs to be done to cut emissions by those responsible for the development, construction and operation of buildings and infrastructure
- 23% increase in businesses setting their Scope 1, 2 and 3 targets for 2025, a 5% increase in businesses aiming for 2030 and a 12% decrease in businesses focusing on 2040
- A significant portion (24%) believed that COP26 will not have any long-term impact on how they do business
Client & Contractor News
- Architecture firm BDP has said that costs on its contract to revamp MPs’ offices in Westminster are set to rise by 50%. The original £25m Northern Estate Programme’s architectural and lead design contract will increase to between £30m and £37.5m according to a notice published by the House of Commons, and the time it will take to complete the project has been extended by two years (to December 2025). Overruns and cost escalations on the job (which involves restoring and upgrading several Grade I and Grade II Listed office buildings in Whitehall) are being blamed on the pandemic. The entire Palace of Westminster refurbishment project, which includes the Northern Estate Programme, is undergoing a detailed review, which will for the first time set out a true sense of costs and timescales and will be considered by Parliament in 2023.
- A report commissioned by main contractor Sir Robert McAlpine found that introducing ‘flexible working’ (which can refer to working patterns, workload or time spent in the workplace) could create 51,200 new jobs in the UK. In a quantification of the economic benefits of the initiative, the report said that a 50% increase in flexible working could result in a net economic gain of £55bn for the entire economy. The construction industry in turn would gain £457m if flexible working increased by 50%. The initiative was trailed on four sites but chief executive Paul Hamer explained the concept is applicable to both the office and on site. With construction labour shortages hitting record highs in recent months, Hamer added:
“Flexible working is a way of retaining talent as well as bringing talent in that might not have considered construction as a career... For me, it’s another key to help unlock this paradigm of productivity increase in efficiency in the UK.”
- Royal Bam is changing its group structure as part of a plan to make its UK arm (which includes Bam Nuttall’s civils business) a top three contractor. The UK and Ireland will be at the heart of a growth strategy in the coming years and the rejigged operational structure will concentrate on these growth businesses alongside the Netherlands. This new structure will replace the existing group business lines, which were split down construction, property and civil engineering disciplines. The new reporting structure, which comes into effect from January, will effectively unite the BAM Construction building business and Bam Nuttall civil engineering operation under one senior executive for the first time. Also under its new strategy, Royal Bam’s remaining businesses in Germany and Belgium will be managed for value with operational cuts and divestments.
- US architect Diller Scofidio & Renfro has unveiled new proposals to replace previous plans for a Centre of Music concert hall in the Square Mile. The existing 1970s buildings at the Museum of London site would be demolished and a pair of office towers built at the London Wall site instead. The commercial redevelopment scheme is arranged around a central ‘bowl’ shaped public garden and will consist of three main buildings, including two towers, which it said would provide “flexible, high quality” office space at a key road interchange on the edge of the City. The two main buildings will feature green walls on their inward sides facing the central park area, with a “quieter, calmer and more formal” appearance on their outside walls. The scheme will take a sustainable approach and a recent structural analysis of the site found that 90% of its materials could be recycled.
Materials & Commodities
- The trade association Logistics UK has said there are early signs that the shortage of lorry drivers will improve. The group said the number of drivers leaving the profession had begun to ease and highlighted that more trainees are coming through the testing system. Logistics UK's report said that by early autumn there were 44,000 fewer HGV drivers compared to the same time in 2019. However, there has been a 25.6% increase in HGV driver tests in Jul-Sep 2021 compared to the same period in 2019 and a three-fold increase in applications for vocational provisional licences. Elizabeth de Jong, policy director at Logistics UK, said that with more drivers trained, there will be an improvement on overall numbers, but added:
"It is still a challenging time, there is still an acute shortage of drivers certainly but there a number of signs of improvement that could be coming"
- Rising energy costs are expected to push construction material prices higher in early 2022. The cost of manufacturing energy-intensive materials such as bricks, glass and cement/ concrete are particularly vulnerable to energy cost hikes. Material price inflation over the past few months has largely been driven by raw material supply shortages but the recent energy price rises are expected to have a much wider impact on prices. Rising energy costs will also feed through to on-site operations, but to a lesser degree. The red diesel rebate will end in April 2022 but short-term workarounds (eg cutting idle and stand-by time) will help reduce exposure to price increases. In the longer-term, switching to electric or hydrogen-powered plant will protect against prolonged price rises.
- The CLC’s latest Product Availability Statement paints a more positive picture than seen in recent months. While demand is still outstripping supply for certain products (particularly imported products), the working group’s statement noted the market is no longer experiencing the extremely high levels of demand seen earlier in the year. UK manufacturers remain at full production capacity which has improved the availability of most products across most regions, but there are some ongoing challenges with the supply of bricks, blocks and roofing products (where timber battens have overtaken concrete roof tiles as the most difficult to obtain) and certain electro-technical products.
- Timber imports were up by nearly a quarter, year-on-year, according to new Timber Trade Federation (TTF) statistics. More than 3.2m cubic metres of timber and panel were imported to the UK in Q3 2021 as the market achieved greater balance between supply and demand after nearly a year of record imports. Timber import levels were more than 23% higher compared to same quarter in 2020 – and more than 10% higher than the last time Q3 volumes exceeded three million cubic metres, back in 2007. To meet the unprecedented domestic demand, a broader spread of countries has been supplying softwood to the UK in these three months as compared to the same period in 2020. Softwood import volumes significantly increased from many countries - including Latvia by 53%, Germany by 93% and Canada by 195%. Speaking about this period of record demand, TTF head of technical and trade policy Nick Boulton explained that “stock levels have returned back towards their pre-pandemic levels and the logistics supply chain is struggling to find sufficient space for further volume”. He added:
“However, while we can see stock levels returning, the UK market is clearly in a different place compared to where it was two years ago, with the likes of HGV driver shortages, port delays and Brexit changes likely to continue to impact the market in the coming months.”
- Ben Broadbent, the Bank of England’s deputy governor of monetary policy, said inflation is likely to soar “comfortably” above 5% next spring when the energy regulator Ofgem raises a price cap affecting millions of households. However, Broadbent said that upside risks to future inflation from the tight labour market may be more significant. Record high levels of vacancies are likely to persist for longer than previously expected as the jobs market adjusts to changes in the economy brought on by the pandemic. He added that pressures in the labour market should begin to ease but cautioned that employers could not count on a ready supply of suitable workers.
- The CBI has cut its forecasts for UK economic growth as a result of rising costs and shortages. Prospects for the economy have been dampened by “short-term headwinds” according to its latest forecast. UK GDP is now expected to hit 6.9% this year and 5.1% in 2022 – down from an earlier outlook of 8.2% and 6.1%. Businesses have been held back in recent months by global supply chain problems as well as shortages of UK workers in key sectors such as haulage and food processing. Meanwhile, higher fuel prices and energy bills have also been taking their toll with inflation. However, the CBI expects supply chain frictions "to largely dissipate by the middle of next year" and that household spending will keep driving growth as incomes grow and households spend some of the extra savings built up during the pandemic.
- Construction activity in the eurozone has risen at the steepest rate in nearly four years. The IHS Markit Eurozone Construction PMI rose to 53.3 in November from 51.2 in October – the sharpest expansion in overall construction activity since February 2018. The rate of job creation picked up, but severe supply chain delays kept input cost inﬂation elevated last month. These lingering issues weighed heavily on business sentiment, which eased to seven-month low. Strong demand among clients and continued government support for the sector helped both output and new orders rise month-on-month.
- China has unveiled a package to boost its economy as the crisis gripping the country’s debt-laden property sector continued to blight prospects for growth. Beijing plans to increase targeted business lending and build more affordable housing to support the housing market. The slowing housing market – once a key driver of growth – has seen a string of defaults in recent months. If China Evergrande Group were to formally default on its looming dues, it would trigger a wave of cross defaults that would ripple through the property sector and beyond. China has ramped up efforts to reassure markets that Evergrande's woes can be contained, and the recent targeted policy announcements are designed to open the fiscal taps and help cushion economic growth from the slowing property market.