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Manufacturing decline hits starts

The industrial construction sector has been one of the big casualties of the recession

Industrial construction has seen its fair share of changes and challenges as a result of the credit crunch. UK manufacturers have felt the strain from higher raw material and energy costs and now as inputs prices ease up they now face the challenge of a sharp decrease in demand.

The ability of developers to move forward with speculative industrial projects has also been reduced. Glenigan recorded a 9 per cent fall in the value of underlying industrial projects starting on site during 2008.

Overall, underlying industrial project starts have lost 50 per cent of their value in the first six months of 2009. The number of pre-construction projects has also fallen.

The flow of new projects starting on site has slowed over the last 18 months and the overhang of vacant premises has continued to rise. Over the same period, the amount of speculatively built floorspace under construction fell by 85 per cent.

Prospects for the rest of 2009 remain subdued. The sharp fall in planning approvals and a significant number of projects placed on hold indicates that the value of work starting on site will remain extremely weak during the remainder of 2009.

Glenigan analysis suggests that industrial construction has suffered from the poor outlook for the UK’s manufacturing sector. The slide in manufacturing output accelerated during the opening months of 2009, with manufacturing volumes during the first quarter falling 5.6 per cent on the previous quarter and standing at 13.5 per cent down on a year earlier.

The sector has aldo been the victim of dramatic falls in the value of underlying construction starts. Even the North West, traditionally a strong region for industrial construction, saw the value of underlying starts fall by 19 per cent last year, while project starts also fell across the Midlands, Wales and Yorkshire and the Humber.

However, the Midlands and the northern regions of England collectively accounted for over half of all project starts by value.

Prospects for the sector in the second half of 2009 aren’t too bright. Manufacturers, faced with weak domestic and overseas demand and surplus capacity, will remain reluctant to invest and in the short term, the industrial construction sector will be experiencing further declines in the value of construction starts.

However, the outlook for 2010 and 2011 is more encouraging. On the upside, in time, UK manufacturers should begin to benefit from improved competiveness following Sterling’s recent sharp falls against the Euro and the US Dollar. This should help temper the impact of the general weakening in UK and global economic growth.

Against this background and based on the sectors current projects, Glenigan anticipate a steady recovery in the value of underlying industrial, albeit from a low base.

Client Focus: Industrial

Client: Prologis Developments

Major Project: One of the client’s biggest projects is the £28.1m scheme to construct a warehouse/distribution unit and ancillary office development. This is part of the DIRFT Expansion Site A428 in Rugby. Warwickshire. The associated works include access roads, sewer systems, infrastructure, enabling and landscaping. Winvic have been named as the main contractor and an application for approval of reserved matters permission has been granted.

Past Activity: This client is currently involved in 93 projects. From 2007 to 2009 ytd Prologis Developments has been awarded 22 projects with a combined value of £241m.

Latest News: This year the client has seen its construction activity thriving in the industrial and private housing sectors.

Contractors they have awarded work to: Winvic Ltd, Kier Western, Walker Construction.

Contact:Head Office: 0121 224 8700, www.prologis.com

By Value

Starts on site and detailed plans approved £m, Dec 08-May 09

ValueStart On SiteDetailed Plans Approved
01/12/2008251.53340.64  
01/01/2009161.584163.281  
01/02/2009103.97196.73  
01/03/2009117.224181.17  
01/04/2009156.572168.94  
01/05/200968.921183.78  

By Number

Starts on site and detailed plans approved, Dec 08-May 09

ValueStart On SiteDetailed Plans Approved
01/12/200870109  
01/01/20099979  
01/02/20094973  
01/03/20097592  
01/04/20095550  
01/05/20094155  

Top Clients for Industrial

Client NameContracts awarded in
  2009 year to date 
    No of ProjectsValue
(£ million)
  
Vireol Plc    1150  
ProLogis Developments Ltd    439  
Goodman Property Investors    227  
BAE Systems Plc    118  
Wm Morrison Supermarkets Plc    115  
Access Self Storage    115  
St Modwen Properties Ltd    413  
Revelan Group    22  
Big Yellow Group Plc    22  
Corus Plc    11  

Top Contractors for Industrial

Client NameContracts awarded in
  2009 year to date 
    No of ProjectsValue
(£ million)
  
Simon Carves Ltd    1150  
Mansell Plc    522  
Morgan Ashurst    218  
BAM Construct UK Ltd    118  
Kier Western    118  
Winvic Ltd    316  
VolkerFitzpatrick    115  
Bamfield Construction Ltd    315  
ROK Group Plc    613  
Marshall Holdings Ltd    412  

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