After a prolonged downturn that forced the restructure of the UK’s biggest contractors and pushed long-established industry names into administration, the construction industry is finally looking forward to significant growth in 2014.
Contractors are increasingly able to choose rather than fight to be chosen for jobs, particularly in London where sectors such as offices and residential are heating to the point of fears being raised of a new ‘bubble’.
But with public sector clients still under pressure and the government showing no signs of easing austerity, tendering in the first half of the year will be tough for contractors, with the possibility of significant cost inflation within their own supply chains set against clients’ continuing demands for low prices.
High Speed 2 and new nuclear are inching closer to fruition but are under threat should the government fail to convince the public, or opposition parties, of their merits. Hopes remain that the Green Deal will also finally bear fruit this year.
The government’s commitment to the refreshed National Infrastructure Plan in December was welcome, but the focus on major infrastructure from the government could increasingly take a back seat in the year ahead in favour of measures to support housebuilding and ease the cost of living.
The NHS and the education system will be top of the pre-election agenda, so expect a continued focus on social infrastructure in the coming year.
However, roads and rail remain good places to be, particularly with long-term roads funding plans finally on the horizon as part of the planned reform of the Highways Agency, and Network Rail increasingly leading the way on early contractor engagement.
The battle to win work on big infrastructure schemes will continue in 2014, with the £600m Northern line extension and more than £2bn of Thames Tideway Tunnel work set to be at the forefront of many main contractors’ minds this year.
In commercial, will speculative development take off this year? Views are mixed.
Deloitte partner in cost consultancy Neill Morrison predicted this week that if speculative office schemes start, they will be in the 50,000 to 200,000 sq ft bracket. They are also likely to be weighted towards the second half of the year.
The Construction Products Association released its latest forecasts this week, predicting 2.4 per cent and 6 per cent growth in commercial, the industry’s biggest sector by output, over the next two years.
Hopes are high that growth will start to spread to the regions in 2014. Cities such as Birmingham and Manchester are working on their own pipelines and are likely to be the immediate beneficiaries of growth spreading from the capital, but 2014 will still be tough elsewhere.
London will continue to feel the benefits of major redevelopment programmes such as those at Battersea, King’s Cross and Nine Elms. Chinese investment is set to progress at pace.
Flagship projects such as Hinkley Point C in the South-west and the Mersey Gateway Bridge in the North-west could boost regional work, while in Scotland the government’s private finance Non-Profit Distributing model and a strong focus on infrastructure should continue to bear fruit.
Investors will demand political certainty on the long-term security of rates of return in sectors, particularly energy.
Questions over political certainty extends to the Scottish referendum on independence in September and general election next May, with industry and politicians keen to avoid a lag in investment.
Economists are already warning that the election could create such a lag in the second half of 2015, so developers could look to rush through deals now in, for example, office-to-residential conversions, while education contractors will be wary of any new government’s plans for policies such as the Priority School Building Programme.
We have been here before, albeit on a larger scale, with the axing of the £55bn Building Schools for the Future programme by the incoming government in 2010.
Those with an established track record in free schools and academies could fail to see the rewards for the fruits of their labour if an incoming government takes a new approach.
Housebuilding will increase, but the prospect of Help to Buy being scheduled to close in 2016 or potentially earlier, should take-up continue at its current pace, leaves a cloud of uncertainty over the market.
Bank of England governor Mark Carney has already indicated his willingness to intervene by tightening lending requirements should talk of a ‘bubble’ manifest itself on the ground.
Build-to-rent opportunities are also likely to spread outside London after the government’s fund to try to increase private rented supply was expanded to £1bn in 2013 due to demand.
An EC Harris report in November found 53 per cent of English councils were potentially suitable for the market.
As money comes back into the economy, many believe retail will be given a lift as consumers feel the effect of more cash in their pockets, potentially coupled with moves by some within the government to boost the minimum wage.
However, while many retailers are planning expansion, the rise of ‘click and collect’ is likely to lead to significantly more refurbishment rather than new retail space.
China’s interest in UK investment shows no signs of abating, with HS2 the latest scheme to come under its consideration, after reports it wanted to invest in reopening an old railway line in Birmingham to connect to the planned high-speed rail scheme.
Lending to construction, particularly to SMEs, should hopefully increase as the industry is able to demonstrate sustained growth, but complaints about the burden of the planning system continue to echo through the halls of Westminster, despite the government’s claims it is scrapping red tape and easing constraints.
While the market seeks a more diverse offering in recovery, housing will continue to provide the backbone for growth.
Growth will be welcomed, but forecasters still warn of big names continuing to go to the wall – evidenced by Northern Irish firm Mivan entering administration last week – as medium-sized businesses suffer on contracts without the cashflow to ride out the storm.
Aside from work, skills will continue to be the number one topic of conversation among chief executives as the industry seeks ways to appeal to the younger generation.