Tag Archive for: construction

uk construction

Brexit will have no impact on the construction industry

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A detailed analysis of the UK’s withdrawal from the European Union, with or without a deal, has shown that it will have little or no impact on UK construction, according to Laing O’Rourke group finance director Stewart McIntyre.

He has lead an analysis of Brexit implications and  explained his findings in the company’s 2018 financial review.

He said that: “Laing O’Rourke has analysed its current order book and pipeline and this review supports an assessment that, to date, a ‘no-deal Brexit’ would present minimal, if any, risk to current projects and liquidity forecasts. The business has also considered implications for the sector and, to date, has not identified any negative impact on the UK construction market either in the traditional built environment or infrastructure sectors. We are concluding that, based on evidence to date and assuming the sector’s clients continue with their projects, there are minimal risks to liquidity forecasts arising from any deterioration in revenue.”

He continues: “The business has conducted a detailed review of its staff and workforce with a full analysis across primary job families. Based on the most recent data, 16.1% of the total UK headcount are EU citizens and 23% of that total are Irish citizens who have the full ongoing right to work in the UK. This risk assessment has highlighted a dependency on EU nationals in certain job families and the business is monitoring developments in these areas, however, it is clear that earnings and rewards are such that it does not present a significant risk to staff retention, staff recruitment or the ability to comply with the minimum earnings threshold for securing visas.”

Mr McIntyre also finds little to fear should the UK have to revert to trading under World Trade Organization (WTO) rules. “The UK business buys assets such as tower cranes as part of its core business and has conducted a detailed analysis on potential tariffs based on the past 12-month record of direct imports from the EU and possible registration procedures available to mitigate import supply difficulties,” he writes. “No tariffs apply under WTO rules to the import of tower cranes and it is assumed that additional customs procedures will create delays of no more than seven days. Apart from construction capital assets, the level of direct EU imports is low and the estimated additional costs arising from a ‘no deal Brexit’ are deemed to be immaterial.”

He concludes with a caveat that continued vigilance is required. “In summary, there has been no change to the group’s workwinning methodologies, or material negative impact on current live projects or staff recruitment and attrition. However, with the political environment continuing to develop, few companies can declare themselves immune to the risks of withdrawal from the EU. The board will continue to monitor developments in the UK business and political environment, and remains vigilant to the need to respond to changes in market conditions such as freedom of movement, finance and tariff implications, disruption to supply of plant and equipment and key construction components, logistics, exchange rates and primary commodity prices as we approach 29th March 2019, and for the period immediately after any other withdrawal date.”

Laing O’Rourke’s phlegmatism in the face of political uncertainty is in contrast to concerns that the Construction Leadership Council (CLC) has aired to government. CLC co-chair Andy Mitchell has written to construction minister Richard Harrington, copying in the chief executive of the civil service, warning that “it will not be possible to mitigate all of the potential impacts of ‘no deal’”.  These include employment issues, trade in construction products, the future regulatory regime for construction products and potential impact delaying projects and adding costs.

Source: The Construction Index

Housing

House-building boosts construction activity

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Surging mortar sales reached a record high in 2018, indicating that house-building in Great Britain remained buoyant in 2018. However,  faltering concrete sales suggest an industry in limbo, waiting for planned infrastructure projects to get going.

Latest data from the Mineral Products Association (MPA) show volumes of mortar sales at their highest level since records began in 2004.

The majority of mortar sales take place within six months of house-building projects starting, so increased volumes indicate that new starts also grew during 2018.

Year-on-year mortar volumes increased by 14.3%, despite dropping by 1% in the fourth quarter. This trend suggests more cause for optimism than other market indicators such as Office for National Statistics data on brick deliveries, which show just a 1.6% increase in the 12 months to Q3 2018.

Beyond house-building, the wider picture of construction demand for construction mineral products is more muted, reflecting an industry still waiting for major projects to get going.

Ready mixed concrete sales volumes fell 1.6% nationally in 2018, weighed down by reduced demand in London, where sales declined by 4.8%.

The MPA’s analysis shows that the southern regions of England and Wales led asphalt sales in 2018, indicative of roadbuilding and maintenance activity, contributing to a 0.7% growth nationally and offsetting declines in most other regions.  Many Highways England projects appear to have been pushed to the back end of the current spending periods.

Aurelie Delannoy, director of economic affairs at the MPA, said: “Like many sectors, construction is awaiting the outcome of Brexit negotiations, but our data shows that Great Britain is still building despite the uncertainty. In particular, strong mortar sales indicate continuing new house-building projects in 2018.  Our analysis, based on actual sales and on-the-ground activity rather than sentiment, suggests this has been higher than forecasted by other metrics.

“Elsewhere, the picture for the industry is more muted as we wait for several major infrastructure schemes to make the leap from the planning phase to the construction site.  Policymakers and clients need to be mindful that the critical mineral resources that underpin our built environment don’t flow from a tap, and preparations to ensure a ready supply need to begin early in a project’s lifecycle.”

The MPA represents more than 520 companies across the £20bn sector.  Its sales data is seasonally adjusted and drawn from the MPA membership which covers 100% of GB cement production, 90% of aggregates, 95% of asphalt and more than 70% of ready mixed and precast concrete production.

Source: The Construction Index

Amsterdam garage

Underwater garage in Amsterdam wins prize

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Albert Cuyp parking garage scooped the European Standard Parking Award (ESPA) Gold Award for its design, which accommodates hundreds of cars.

Designed by ZJA Zwarts & Jansma Architects, the garage is unique in being the first parking garage built under an Amsterdam canal. The designers took this approach to maximise use of limited space in the neighbourhood.

The award is a recognition for parking garages that excel in design, quality and customer service and is awarded by Vexpan, the platform for parking in the Netherlands. The Albert Cuyp parking garage is the 13th parking garage in the Netherlands to win an ESPA Gold Award.

ZJA designed the underground parking garage for 600 cars and 60 bicycles under the water of the Boerenwetering canal. Max Bögl Netherlands is responsible for the construction of the Albert Cuyp parking garage, commissioned by the Municipality of Amsterdam.

With a large number of parking places disappearing at street level, more space becomes available for pedestrians, cyclists and planting. The idea behind the design is to blend the garage into the existing urban landscape. All elements are installed out of sight while ramps are integrated into the existing quays without any conspicuous elevations.

The motto is: ‘simple and safe, visually unobtrusive’ to keep the quality of the public space for pedestrians and cyclists optimal. Entrances and elevators are therefore modest in size. Walls are made of glass, allowing daylight into the garage and allowing visitors to easily orient themselves.

Because the parking system remembers which license plate is parked in which slot, it qualifies as a smart garage. However, the real intelligence is that not a square foot of city has been sacrificed to house 600 cars so residents and visitors can enjoy more spacious, greener and quieter streets.

The new Albert Cuyp parking garage could be an example for other cities that have a limited space above ground, according its designers. Furthermore, underwater construction in cities can be used for multiple applications.

In the past ZJA, together with Strukton, designed a plan for a possible urban expansion under the canals of Amsterdam; AMFORA. In addition to underground parking spaces, the concept also offers spaces for sports facilities, shops, cinemas and other recreational areas. In this way, the urban space under the city of Amsterdam is better utilized.

Source: worldarchitecturenews.com

What can we expect in 2019?

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Building.co.uk have published their thoughts on what there is to look forward to this year in construction – and they believe that there is a lot!

The construction industry could be forgiven for not looking forward to 2019 with any great relish. After all, the year begins with the economy in a moribund state, housing market confidence dropping and the very existence of some of the UK’s biggest construction firms under threat. And with Brexit looming in the next three months, there are still few signs of the “sunlit uplands” promised by Boris Johnson before the 2016 referendum.

Of course Brexit – whenever, how and even whether it happens in 2019 – will surely set the political and economic weather that the industry operates in this year. After all, both crashing out of the EU with no deal and a Corbyn-led Labour government are both still conceivable outcomes from breaking the current political impasse, which must happen by 29 March.

But predicting how the party and parliamentary wrangling and finagling over Brexit will pan out is a tall order. So, setting Brexit to one side, what can we expect from 2019?

At the top level, the forecast of the Construction Products Association, which assumes an orderly EU exit moving the UK into the “business as usual” transition period in March, is for minimal – 0.6% – growth in construction output for the year, supported by modest growth in housebuilding and infrastructure and 1.4% overall growth in UK GDP. The overall picture hides huge geographical variations, with markets outside of London likely to show more growth than the capital. So, not strong, perhaps, but stable at least.

Last year began with the dreadful shock of Carillion’s collapse, and the big concern for many in the industry will be the spectre of history repeating itself, with sickly patient Interserve very much on the operating table. Interserve is not alone in having its balance sheet put under the microscope, and many contractors will be much more focused on cash flow and debt levels than overall workload.

There are positives, or course, with many hoping 2019 will be the year when efforts will take off to reform the industry through adoption of digital and advanced manufacturing technology. For those of a less utopian bent, the first few months of the year will be significant – Brexit or otherwise – because of the planned government spending review, which will set the parameters for departmental spending for the years ahead. Simon Rawlinson, head of strategic insight at consultant Arcadis, says: “It’s a really big one. The government’s presumption in favour of offsite manufacturing means that the spending envelope set by the chancellor will be critical. These programmes will create the initial demand to drive uptake of modern methods forward.”

There’s no question about what will be the big contractor story of 2019, whichever way it pans out: Interserve. The £3.2bn-turnover firm has said it will announce its refinancing in “early 2019”. With the company valued at just £20m and analysts estimating it will need to raise anything up to £500m to put it on a sustainable footing, this means its lenders will have to be persuaded to swap loans for control of the business.

For listed construction firms, much is likely to depend on whether Interserve can pull this deal off. Cenkos analyst Kevin Cammack says its future is in the balance. He adds: “If the refinancing happens, it’ll happen in January, and it’ll take the short-term pressure off the sector. If the company falls the consequences will be worse than Carillion, I think. It will spook all lenders immensely.”

The attitude of contractors’ banks is an issue likely to concern all the big firms, with Kier’s late 2018 rights issue being prompted, it said, by the decision of a number of major lenders to reduce their exposure to contracting businesses. If lenders do pull in loans elsewhere, this could threaten other firms or reduce their ability to invest. Another much anticipated event will be the release of overdue accounts for under-pressure contractor Laing O’Rourke, which has reported more than £300m of losses in the last few years.

More positively for specialist contractors, moves to ban retention payments are progressing, with the so-called “Aldous Bill” due for a second reading in the Commons on 25 January.

Big infrastructure 

The industry will be hoping that 2019 contains much better news on big infrastructure schemes than 2018. With the first of Crossrail’s phased openings already pushed into this year, all eyes will be on whether the £15bn rail project manages to get over the finish line in 2019. The omens don’t look good, with new chief executive Mark Wild admitting in December that an autumn 2019 opening “could no longer be committed to at this stage.” Costs have already risen by £2bn on the project, and fears remain they could rise further.

But Crossrail is not the only project under pressure. Construction work had been due to start in earnest on HS2 this spring, but the government admitted last year that it had put the start back until the summer. It has also delayed the legislation needed for the next phase of the HS2 project by a year. Don’t be surprised to hear of further delays as the government tries to control costs on the project. Noble Francis, economics director at the Construction Products Association, says: “We’re now anticipating that the delays may push work on HS2 into 2020.”

Arcadis’ Rawlinson says the problems with these big infrastructure projects will provide a “wake-up call” to the industry in 2019. “There’ll be a real call for genuinely aligned ways of working by clients and suppliers to get these problems addressed.”

In the utilities sector, the response expected this month by water regulator Ofwat to investment plans by the privatised water companies will set the agenda for work in that sector. Matt Cannon, incoming chief executive at the Clancy Group, says: “The regulator’s price review gives our sector an opportunity to set out a clear plan to tackle challenges around affordability, innovation, customer service and resilience across the network.”

The government is also scheduled to respond formally to last year’s first ever National Infrastructure Assessment, conducted by the National Infrastructure Commission  (NIC) – one of 2018’s few bright spots for the construction industry. David Whysall, managing director of infrastructure at Turner & Townsend, says: “The current political situation is resulting in a reduction in business confidence that is now starting to materially affect the construction industry. We therefore must see the government back the NIC and implement the investment programmes it sets out.”

The Construction Products Association now expects infrastructure output to grow by 8.7% in 2019, in contrast with its previous forecast of 13.2%.

Innovation

Last year’s construction sector deal and the creation in December of the Transforming Construction Alliance, alongside growing interest in modern construction methods, gives some cause for optimism that 2019 could see attempts to modernise the industry gain pace. The government has provided £72m to set up what it has called the “Core Innovation Hub” to drive improvements, and what form that takes will be a large part of the discussion in the year ahead. We should also see the first winners of a competition to receive a share of £12.5m from the Industrial Strategy Challenge Fund to support construction innovation, announced in the coming weeks.

Arcadis’ Rawlinson says: “This year is when we should start to see the fruits of the Transforming Construction investment. Early 2019 should tell us some really interesting things about where innovation thinking is at in the industry.”

Whatever happens with this government push, many are also predicting a ramping up of private sector efforts to digitise the construction process, such as by integrating design with offsite manufacturing.

Sarah Prichard, UK managing director at BuroHappold Engineering, says: “This will be the year when engineers really start to capitalise on recent developments in automation in design. The time has come to make building design and construction leaner and more efficient.” Steven Charlton, managing director of architect Perkins+Will, says: “I expect to see an open debate about data and how to share it. There’s now a realisation we need to tackle this.”

Housing

Brexit will undoubtedly shape housing market sentiment in 2019 one way or another, but even without the drag effect of political uncertainty, there are other reasons to be cautious on housing output. The Construction Products Association forecasts private housing output to grow 2% this year, with Help to Buy sustaining building in the face of deepening market weakness. Achieving this number may depend on further growth from institutional investors and housing associations, given the number of volume housebuilders, such as Crest Nicholson and Berkeley Group, that are forecasting stable or reduced volume this year.

The RICS forecasted before Christmas that overall house sales would weaken by 5% in 2019, with housebuilding growth “uncertain” at best. The most recent government new orders data, to the second quarter of last year, also suggests that housebuilding volume has peaked. Cenkos analyst Cammack says: “We’re likely to see a relative slowing in private sector starts and a relative quickening in the pace from institutions and housing associations, which will shift the dynamic in the sector.”

Market sentiment aside, the issue of Grenfell will continue to dominate, with the industry still digesting the government’s formal response to Dame Judith Hackitt’s review of building regulations and fire safety, which last year called for a new regulator to sign off tall buildings consents and big process changes.

Nigel Morrey, technical director at Etex Building Performance, says: “The government has now endorsed the Hackitt review’s recommendations to address what the review identified as an industry-wide lack of evidence of performance, compliance and recording of information. Yet it is still not clear exactly what format regulatory changes will take nor when they will be introduced, with no official timetable attached to the government’s response. In particular, we need to see progress on the creation of the Joint Competent Authority to assess building safety. Uncertainty is likely to remain the watchword in 2019.”

Commercial

The outlook for commercial building is subdued in 2019. The Construction Products Association forecasts a 5.4% decline in commercial buildings output in the year, a consequence of the political uncertainty we’ve already seen holding back investment. Its forecast says the sharp fall in new orders for large office buildings seen in 2018 followed on from “concerns from investors over long-term economic prospects and returns on investment” in the wake of the 2016 referendum on leaving the EU.

The retail sector is also likely to be hard hit, with poor sales over the Christmas period deepening concerns over the long-term sustainability of high streets and shopping centres. This calls into question major retail schemes, such as the £1.4bn Brent Cross scheme – already on hold – as well as the similar sized Croydon Partnership development. Perkins+Will’s Charlton says this will mean businesses involved in retail will have to adapt quickly in 2019. “Retail’s going to take an absolute hammering. This will present a huge opportunity to repurpose existing retail developments, and potentially resolve the housing crisis at the same time. There’ll need to be a radical rethink of plans.”

august figures

Construction output grew 2.1% in 3rd quarter

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Construction output is continuing to recover following a relatively weak start to the year, increasing by 1.7% in September 2018 and by 2.1% for the third quarter.

The 2.1% growth in GB construction output in Quarter 3 (July to September) 2018 followed a fall of 1.6% in the first quarter and an increase of 0.8% in Quarter 2 (April to June) 2018.

Growth in the third quarter of 2018 was driven by all new work which increased by 2.8%, and repair & maintenance which increased by 1.0%, according to Office National Statistics data for Great Britain.

Between August and September 2018, construction output increased by 1.7%, driven by a 2.8% increase in all new work and partly offset by a fall of 0.3% in repair & maintenance.

The level of the all work series for September 2018 reached £13,995 million – a record high since the monthly records began in January 2010.

Construction output increased by £872m in Q3 2018 compared with Q2 2018. The most notable contribution to growth came from private housing new work, which increased by £507m between Q2 and Q3.

Non-housing repair & maintenance and infrastructure also grew strongly, by £230m and £191m respectively.

In contrast, downward pressure on construction output in Q 3 2018 came from private commercial new work, private housing repair & maintenance and private industrial new work, which had falls in the three-month on three-month series. These decreased on Q2 by £162m, £124m and £60m respectively.

construction output 2

Blane Perrotton, managing director of the national property consultancy and surveyors Naismiths, commented: “The construction industry is enjoying an Indian Summer. True, the surge in output in the third quarter is flattered by comparison with the grim decline of the first quarter and the plodding indifference of the second. But this is real, and welcome, progress.

“House-building retains its crown as both poster child and ‘get out of jail’ card for the industry as a whole. House-builders delivered a half billion boost to the industry in the third quarter, but elsewhere the growth was patchy at best. Infrastructure work remains in positive territory but output is down, with contractors focusing on finishing existing projects rather than starting new ones.

“Among developers there is a widening confidence gap between the overheated southeast and other areas where demand is stronger and margins better. Despite a marked improvement in the Brexit mood music this week, months of deadlocked negotiations have choked investor appetite. Unless and until the political limbo is ended, the industry will continue its holding pattern of two steps forward and one step back.”

Source: UK Construction Week

uk construction

Construction growth rising

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UK construction growth has risen through October, thanks in part to an upturn in civil engineering activity.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index rose in October to 53.2. This was up on the 52.1 reported in September and against the no-change reading of 50. For the uninitiated, a figure below 50 indicates contraction.

Having dropped off somewhat through August and September, civil engineering activity grew at its quickest pace since July 2017. Housing and commercial construction also expanded, albeit at a slower rate. New business volumes rose more slowly however, with construction firms citing intense competition and delayed decisions from clients as the root causes. Worryingly, business optimism fell to a near six-year low.

Understandably, input purchasing increased more cautiously – at its slowest rate in seven months. And yet, delivery times for construction products and materials continued to stretch, with firms reporting stock shortages at builders’ merchants.

Trevor Balchin, Economics Director at IHS Markit, said: “Although total UK construction activity rose at a stronger pace in October, the underlying survey data paint a less rosy picture for the sector towards the end of the year.”

According to Balchin: “Construction firms continued to raise headcounts at a strong pace, suggesting they are not expecting an imminent contraction in demand. That said, if the new orders and expectations indices remain at current levels or fall further, the employment index could also drift back towards the 50.0 no-change mark.”

Duncan Brock, Group Director at CIPS, added: “These results point to the sector getting stuck in the mud as we approach March 2019, and with ongoing supplier delays and stock shortages, the sector may not be able to respond quickly enough anyway should there by a sudden upturn in fortunes.”

Source: UK Construction Week / UK Construction Media

commercial

Commercial building was the best performing area of construction output in August

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Commercial building was the best performing area of construction output in August 2018, followed closely by residential work.

However, the latest expansion of housing activity was the weakest since March, and civil engineering workload decreased for the first time in five months. A number of survey respondents cited a lack of new work on infrastructure projects.

Overall, August data pointed to a renewed slowdown in output growth across the UK construction sector but positive signs included an increase in new business and employment growth maintaining the recent peak level seen in July.

At 52.9 in August, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) eased from July’s 14-month high of 55.8, but remained above the crucial 50.0 no-change mark. The latest reading signalled a moderate overall rise in construction output, with the rate of expansion the weakest since May.

Anecdotal evidence cited resilient client demand and supportive economic conditions, but there were also reports that Brexit-related uncertainty continued to hold back investment spending. Higher overall workloads encouraged additional staff recruitment across the construction sector in August. Survey respondents noted tight labour market conditions and shortages of suitably skilled candidates to fill vacancies.

Purchasing activity increased for the eleventh consecutive month in August, although the latest upturn was the weakest since March. Low stock and labour shortages among suppliers continued to impact on delivery times for construction products and materials. The latest deterioration in supplier performance was the greatest seen for almost three-and-a-half years. Despite stretched supply chains and rising energy-related costs, latest data indicated that input price inflation edged down to its lowest since July 2016.

UK construction companies are optimistic that business activity will expand over the coming 12 months, but the degree of confidence eased to its weakest since May. Survey respondents cited confidence about achieving organic growth through new project wins and geographical diversification, while Brexit uncertainty remained the main factor cited as holding back sentiment.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “The construction sector slipped back into a slower growth phase in August, with this summer’s catch-up effect starting to unwind after projects were delayed by adverse weather at the start of 2018.

“Civil engineering was the worst performing area of the construction sector, with output in this category falling for the first time since March amid reports citing a lack of new work on infrastructure projects. House building saw a particularly sharp slowdown since July, meaning that commercial construction was the fastest growing sub-sector in August.

“There are some encouraging takeaways from the latest survey, especially the resilient degree of new business growth in August and a strong upturn in staff recruitment. Survey respondents noted that they are confident about achieving organic growth at their businesses in the coming 12 months. The degree of optimism reported in August remained constrained by external factors, including domestic political uncertainty, stretched supply chains and shortages of suitably skilled labour.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Cracks in the construction sector’s masonry were beginning to show again this month, and the house building sub-sector was hit the hardest as it reported the poorest performance since March this year.

“Civil engineering saw a drop off in larger infrastructure projects and found itself in contraction territory. Levels of new work held moderately steady overall, but with any significant growth held back by Brexit uncertainty. It was also the logjams in supply routes that hampered work in hand where material and skills shortages meant vendor performance deteriorated to its worst level since March 2015.

“If there is anything positive to note from this month, it would be that the rate of hiring remained strong. However, persistent pressures from skills shortages and slow rates of new orders will continue to hit business optimism still trailing below the survey’s average.

“The sector is hovering too close for comfort to the no change mark, which makes it a contender for more disappointment next month. Though the path to Brexit is paved with good intentions, without significant progress the sector will soon be building castles in the air rather than on solid ground.”

Source: The Construction Index

 

 

Summer

Summer high for construction

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UK Construction is riding high through summer, with the latest IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) indicating the fastest rise in construction output since May 2017.

With robust and accelerating rises in construction activity during July, the industry is riding a successful summer. House building has expanded at its sharpest pace since December 2015, underpinning the sector.

The latest survey also indicated that new business growth gained momentum, which contributed to the largest rise in employment numbers since December 2015.

The latest survey results put the Index at 55.8, a sharp rise on 53.1 in June. Purchase Mangers responding to the survey noted improved demand and a higher volumes of new starts, together with some degree of catch-up work from the terrible spring weather.

Continuing the trend seen this year, house building and residential work remains the best performing sector. Activity in July shows the strongest upturn since December 2015. Commercial work, which has been lagging since 2015 also showed a strong pick-up in pace.

July 2018 has given the construction sector its strongest increase in total new orders for over a year, with survey respondents noting a general improvement in client demand had led to successful contract negotiations on larger scale projects.

However, construction companies are cautious about the year ahead business outlook, with the degree of positive sentiment about future workloads unchanged since June and remaining weaker than the long-term survey average. Anecdotal evidence suggests that Brexit-related uncertainty continued to hold back business optimism in July.

Supply chain pressures continued in July, which contributed to another sharp lengthening of delivery times for construction products and materials. However, input cost inflation moderated from the nine-month high seen in June.

Civil engineering activity increased only moderately, with companies noting a lack of work to replace completed projects (particularly railway infrastructure work).

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI®, commented: “July data reveal an impressive turnaround in the performance of the UK construction sector, with output growth the strongest for just over one year. While the recent rebound in construction work has been flattered by its recovery from a low base earlier in 2018, there are also signs that underlying demand conditions have picked up this summer. New business volumes expanded at the strongest rate since May 2017, while workforce numbers increased to the greatest extent for just over two and-a-half years.

“House building was the bright spot for construction growth in July, alongside a stronger upturn in commercial development projects. Residential activity and commercial work both increased at the sharpest pace since December 2015, which contrasted with another subdued month for civil engineering.

“UK construction companies experienced substantial cost pressures in July, driven by rising fuel bills and higher prices for steel-intensive items. Meanwhile, supply chains struggled to keep up with greater demand for construction products and materials, which resulted in the greatest lengthening of delivery times since July 2017.”

Source: UK Construction Media

Construction growth

Construction growth to rebound to 2.3% next year

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UK construction output is expected to bounce back to 2.3% growth in 2019 after dipping by 0.6% this year.

The growth hiatus this year ends the five-year run enjoyed by the industry, fed mainly by private sector home building and strong commercial and industrial activity.

While forecast 2019 and 2020 growth will boost civils contractors and trade contractors working for house builders, commercial building contractors are expected to continue to feel the squeeze in both commercial and retail work opportunities.

The latest forecast from economists at the Construction Products Association, revises 2018 output down from stagnation to contraction, due mainly to bad weather and the fall-out from Carillion.

Forecasters predict growth will bounce back in 2019 and then expand by 1.9% in 2020.

Strong house building activity outside London will drive up activity in this sector by 5% in 2018 and 2% in 2019.

Infrastructure will also become a primary driver of growth for the whole industry, with output forecast to hit a historic high of £23.6bn by 2020, driven by large projects such as HS2 and Hinkley Point C.

Without the forecast growth in infrastructure and private housing activity, total construction output would fall by 3% in 2018 and remain flat in 2019.

The demise of Carillion resulted in a poor performance for the industry at the start of the year, which combined with the bad weather, lost UK construction £1bn of work.

It is estimated 60% of this work may be recovered, but Carillion’s collapse will cause further delays at two major hospitals as work on the £335m Royal Liverpool University and Birmingham’s £350m Midland Metropolitan hospitals is on hold until at least 2019.

Brexit uncertainty continues to drive the sharpest decline for construction in the commercial sector, particularly felt in the offices sub-sector which is expected to fall 20% in 2018 and a further 10% in 2019.

Meanwhile, the shift to online shopping is causing woes for the high street, with new retail construction expected to fall by 10% this year.

Noble Francis, Economics Director at the Construction Products Association said: “Overall, it’s mixed fortunes for contractors at the moment.

“On the positive side, house builders are keen on accelerating building rates outside of London and that is expected to be enough to offset sharp falls in house building in the capital.

“Firms working on major infrastructure projects also have a lot of work in the pipeline. Infrastructure output is forecast to rise by 3% in 2018 and 13% in 2019.

“This growth is highly dependent on large projects such as HS2 and Hinkley Point C. As ever, there remain concerns about government’s ability to deliver infrastructure projects without the cost overruns and delays that we have seen on Crossrail and HS2 recently.

“On the negative side, the elephant in the room is clearly Brexit uncertainty, which has had a big effect on international investment, especially where it is high up-front investment for a long-term rate of return, which is now highly uncertain.

“It badly affects demand in sectors such as prime residential in London, commercial offices towers and industrial factories, which is dependent on manufacturing.”

CPA summer 2018 forecast

  • Construction output to fall by 0.6% in 2018 before growth of 2.3% in 2019 and 1.9% in 2020
  • Private housing starts to rise by 2.0% in 2018 and 2019
  • Commercial offices output to fall by 20.0% in 2018 and by 10.0% in 2019
  • Commercial retail output to fall by 10.0% in 2018 and remain flat in 2019
  • Infrastructure construction to grow by only 3.2% in 2018 and 13.0% in 2019

Source: Construction Enquirer

construction output

Construction buyers have reported strong rise in construction activity

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Construction buyers have reported the strongest rise in construction activity since November 2017.

The latest IHS Markit/CIPS UK Construction Purchasing Managers’ Index for June registered 53.1 in June – up from 52.5 in April.

The rise represents the sharpest increase in overall construction output since last November.

New orders also rose at their fastest pace since May 2017.

Residential and commercial work were the main drives as civil engineering continued to plod along.

Tim Moore, Associate Directorat IHSMarkit and author of the IHSMarkit/CIPS Construction PMI said: “The latest increase in UK construction output marks three months of sustained recovery from the snow-related disruption seen back in March.

“A solid contribution from house building helped to drive up overall construction activity in June, while a lack of new work to replace completed civil engineering projects continued to hold back growth.

“Of the three main categories of construction work, commercial building was sandwiched in the middle of the performance table during June.

“Survey respondents suggested that improved opportunities for industrial and distribution work were the main bright spots, which helpedto offset some of the slowdown in retail and office development.

“Stretched supply chains and stronger input buying resulted in longer delivery times for construction materials during June.

“At the same time, higher transportation costs and rising prices for steel-related inputs led to the fastest increase in cost burdens across the construction sector since September 2017.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “With the fastest rise in new orders since May 2017, it appears the brakes are off for the construction sector.

“Despite being hampered by economic uncertainty, firms reported an improved pipeline of work as clients committed to projects and hesitancy was swept away.”

Source: Construction Enquirer