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2018 UK Industry Performance (KPI) Report

The 2018 KPIs provide a valuable assessment of the industry’s recent performance, its strengths and weaknesses, and its ability to address the challenging market conditions forecast for the next few years.

The latest set of KPIs is based upon projects completed during 2017, a year of heightened political and economic uncertainty which disrupted construction workloads and was accompanied by rising material and energy costs and growing concerns over labour availability. Many of the projects covered by the survey were awarded and started on site in earlier years, requiring contractors to accommodate these additional pressures within established build programmes and budgets.

The KPIs reveal a dip in client satisfaction with the industry’s performance, although client satisfaction remains at historically high levels.

Overall client satisfaction is still high with 87% of clients rating the finished product as 8 out of 10 or better, but this is slightly down on the record 90% seen in the previous surveys. Clients’ satisfaction with service and value for money fell more steeply, potentially reflecting the pressures faced by the industry from rising costs and reduced labour availability.

Contractors’ satisfaction with the industry’s clients also slipped. A fall in overall satisfaction has been accompanied by declines in satisfaction about both the information provided for the project by the client and over payment provision.

Looking ahead, firms are facing a sustained period of volatile industry workload and structural change as the UK economy and the construction industry adapt to life outside of the EU. This is likely to increase the pressure on firms’ margins and intensify the need for firms and the industry as a whole to raise productivity. Accordingly, a marked rise in productivity over the last year is encouraging.

Up-skilling the workforce, containing costs and efficiency improvements, including through the greater use of offsite manufacture and integrated working, will be priorities if the industry is to secure improved margins and greater productivity over the coming years.

The Construction Industry Key Performance Indicators provide firms with benchmarks covering the industry’s economic performance, workforce and environmental performance. The KPIs enable firms to appraise their own performance against their peers and help identify where they can secure future improvements that will help enhance their competitive position and win work.

Read the full 35-page document here.

Source: Glenigan

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Council housebuilding gets £2 billion boost

Local authorities will get a £2 billion boost from government changes to funding arrangements aimed at reviving dwindling council housebuilding.

The government has increased its affordable homes programme from £7.1 billion to £9.1 billion, which it claims will create spending of £5 billion on housebuilding from councils and housing associations.

“With a typical £80,000 subsidy, this £2 billion investment can supply around 25,000 more homes at rents affordable for local people,” explained the Ministry of Housing in a statement

In the last two decades the number of council houses in Britain has halved according to government statistics released in November 2017, which show total stock in Britain of two million homes.

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Image Source: Stitch Architects

In Glenigan’s ranking of the construction industry’s top 100 clients, 22 entries are local authorities but residential work is having little impact.

Leeds City Council is the highest ranked local authority after awarding £272 million-worth of construction work in the 12 months to Q3 2018.

Nearly three quarters of this spending is for the £120 million Leeds Public Transport Investment Programme and the £80 million East Leeds Orbital Road. The biggest housing project identified by Glenigan’s construction market research is for 27 houses.

Dundee City Council features amongst the top 100 clients, but due to a £100 million energy from waste plant, while the West Midlands Combined Authority’s appearance is down to the Midlands Metro project.

London leads the way

Unlike the provinces, social housing work in London is booming. In the three months to August 2018, housing starts in London surged 145% as work began on 5,774 units according to the National House-Building Council.

NHBC Chief Executive Steve Wood put this down to “increased activity by housing associations and the continued flow of inward investment on for-sale and private rental developments.”

However, councils in the capital are also pressing on with work. There are 10 London boroughs in Glenigan’s ranking of the top 100 clients.

The London Borough of Barking & Dagenham has let £185.9 million-worth of construction work in the last year, while Hackney’s construction programme is worth £177.4 million. Both feature council house projects.

Barking & Dagenham council is building a £39.8 million apartment scheme in Wood Lane, while Glenigan’s construction market research identifies more than 300 units starting in Hackney’s housing programme.

Countryside’s design and build contracting division is working on Barking & Dagenham’s Wood Lane development (Glenigan Project ID 15335982) and Hackney’s £80 million Clapton Common scheme, which features 132 flats (Glenigan Project ID 16237786).

Emerging trends in the capital

In the capital, an emerging trend is seeing big commercial housebuilders to form joint ventures with councils to develop unused land. This gives housebuilders access to land and local authorities a share of profits.

Housebuilders are increasingly willing to accept this arrangement as these agreements unlock large sites, where their JV partner is also the local planning authority.

Affordable housing completions have leapt 66% to 1,073 units in the last year at Countryside, which has 29,878 social housing plots under its control. This land is not all in the capital but most of the group’s exposure is in London, the Home Counties and the North West and other housebuilders are increasingly changing their working models to access land.

Source: Glenigan

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Developers look for alternatives to create new construction opportunities

As the London office market has slowed, the major City developers are looking at alternative sectors for investment which could create some promising new construction opportunities. New housebuilding & build-to-rent, serviced work space and office refurbishment are among the sectors which property companies are pursuing.

Grosvenor Group, the privately-owned property group best-known for owning much of Mayfair and Belgravia, has recently announced plans to triple the size of its strategic land business and create a portfolio of at least 30,000 homes over the next five years. The group says it aims to be a market leader in large scale communities, which offer high quality urban designs.

Grosvenor plans to take sites of 2,000-5,000+ homes through planning and design and build them in areas with buoyant local economies where new homes are in short supply. To this end, it has expanded its homes pipeline to 9,300 from 2,100 last summer. The group is developing a scheme of 1200 homes at Trumpington Meadows in Cambs and has recently appointed Redrow Homes to deliver a development of 900 homes at Barton Park near Oxford, which will be one of 10 NHS healthy new towns.

Grosvenor is also progressing a huge £500 million investment involving the construction of some 1,500 rental homes on the site of a former biscuit factory in Bermondsey, together with a school, new offices and public places.

Meanwhile, the City’s confidence in the potential for the rented homes sector is reflected in plans unveiled last month by investment group, Harwood Capital, to raise £175 million through a stock market float to set up a fund to invest in private rented homes in UK regions.

The UK’s second largest quoted property group, British Land is also looking at the ‘build to rent’ sector, with potential developments in Ealing and Rotherhithe.

Flexible space

Having witnessed the expansion of the serviced office sector, British Land has also set up a thriving flexible office brand, Storey which it plans to extend to up 10 per cent of its own office portfolio. Rather than letting space to serviced office operators, other major quoted property groups such as Land Securities and Great Portland Estates are also looking at developing their own flexible office brands.

Great Portland Estates recently pointed to encouraging early interest in its own fitted-out flexible space, which offers simplified leases and terms starting from one month. It has recently made its first letting of flexible space at Elm Yard, WC1.

Refurbishment prospects

As well as creating tender opportunities for fit-out contractors, the growth of serviced space will reinforce construction prospects in the office refurbishment market. Here , Glenigan Construction data shows that detailed plans have recently been granted and tenders recently returned on one of the City’s largest office refurbishment projects, Stanhope’s £50 million construction project involving alternations/extensions  31 Gresham Street (Glenigan Project ID: 17239967). Work is set to start in the new year.

Glenigan Construction data shows that tenders have also recently been returned on a £4 million office refurbishment for a British Land scheme at 19 Liverpool Street in the City where work is set to start in Spring 2019 (Glenigan Project ID: 18255913).

Source: Glenigan

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Key construction sectors could gain from a hard Brexit

Concerns over the impact on the construction industry of Britain leaving the EU without a deal have inevitably been heightened as the March departure date looms. But whilst business confidence is fragile, there are signs that some key construction sectors could prove resilient or even gain from a hard Brexit.

Investment on the quayside

The prospect of congestion at the ports – particularly Dover – and an end to ‘frictionless’ trade may create tender opportunities as UK ports invest more in upgrading and enhancing their facilities. To date, Brexit has not deterred investment on the quayside.

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Last month ABP, Britain’s largest port owner, unveiled proposals for Humber International Enterprise Park; one of the largest port development sites in the UK covering 453 acres and which it hopes will attract major distribution and manufacturing businesses. Meanwhile, work got underway earlier this year on a £32 million expansion at the Port of Felixstowe (Glenigan Project ID: 17104784), which will significantly increase capacity at what is the UK’s largest container port.

The weaker pound ushered in by Brexit could also provide a further lift to the numbers of tourists visiting the UK, giving a boost to hotel construction programmes. For now, the pace of expansion at budget hotel chains shows little sign of slowing. Having recently opened a 395-room hotel in the City, Travelodge is currently investing £82 million in building projects involving four hotels in London. Moreover, it is looking for a further 100 sites across London to open hotels, which will create further tender opportunities.

New hotels capacity is also being built in the regions. Glenigan Construction data shows a contract has recently been signed on the £15 million Moxy Hotel in Manchester with work set to start on the 21 month project later this year (Glenigan Project ID: 16135782).

The prospect of Britain leaving the EU customs union could also provide a spur to the domestic industrial building/logistics sector, particularly as manufacturers and retailers seek to maintain larger volumes of components and supplies closer to home.

Logistics space in demand

Although the national picture is mixed, the demand for warehousing and logistics space is continuing to expand in key manufacturing regions. The latest Glenigan Construction data shows that the value of detailed planning approvals for industrial projects in the seven months to July 2018 rose by 115% in the East of England compared to the period last year and by 147 % in the North East. On the same basis, industrial planning approvals were up by 84% in London, 77% in the North West and 30% in the West Midlands.

These figures chime with recent regional market surveys highlighting the potential in the industrial construction sector. Around Peterborough for example, where Amazon, Debenhams and Ikea all have major distribution centres, a recent Savills report showed the vacancy rate for industrial space was running at a historic low of just 2.2 per cent.

The industrial development market looks particularly healthy around the Home Counties. Glenigan Construction data shows work has recently started on a £7.6 million scheme at Symmetry Park in Bicester (Glenigan Project ID: 18035400) where Db Symmetry is building 14,200 sq m of warehouse space.

With its recent results, Kier Group noted that the industrial sector remained buoyant with strong occupier demand and robust investor sentiment. The firm’s property arm has started work on new sites in Basingstoke and Reading and secured further sites in Chelmsford, Gravesend, Solent and Maidenhead with construction due to start over the coming year.

Source: Glenigan

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Carillion – where did it all go wrong?

Carillion has disappeared from the annual contracts leagues after one of Britain’s biggest contractors filed for compulsory liquidation on 15 January 2018

What went wrong at Carillion is still being worked out, but the company has been consistently ranked amongst the industry’s top 20 contractors by orders according to Glenigan’s research.

The highest end-of-year ranking in the past decade was fourth, which was achieved in 2009, when orders totalled £1.9 billion, and again in 2013 with a smaller order book (see table).

Glenigan’s research, which excludes term maintenance and framework agreements, shows a clear reduction in contracting workload in 2011 and 2012.
This came as the group moved further into support services and facilities management work and acquired heating and renewable energy group Eaga for £306 million in 2011.

This acquisition did not work out as tariffs on solar energy were reduced, while other support services work did not produce the returns that the management expected.

As a result, Carillion sought more contracting work, which typically aids cash balances albeit only in the short term as this money needs to be paid out to the supply chain.

This return to contracting work pushed up the orders total and also raised the risk profile as the company took on larger projects, which typically carry more risk as problems with delays can be costly.

In 2013, Glenigan’s research shows that Carillion’s annual order book ballooned by 134% and the size of the average construction contract won by the company leapt by 81% to £41.6 million.

This measure subsided in 2015 but leapt again in 2016 as Carillion took on larger projects, such as the £745 million Aberdeen Western Bypass scheme.
Cost over-runs on this deal, which was won in joint venture with Balfour Beatty and Galliford Try, was among the troublesome contracts that took Carillion into liquidation.

In 2017, the size of the average contract won by Carillion had reached £34.0 million, which was the second highest in the last nine years. This rise was partly produced by taking on work on HS2 in the Midlands, which was where the company’s largest regional exposure could be found.

At the end of 2017, Carillion was ranked amongst the top 10 contractors by orders in four of the 11 British economic regions. The biggest regional exposure was in the West Midlands, where the company won £463.3 million-worth of work last year and was ranked fifth.

In the East Midlands, Carillion was ranked third with an order book totalling £240.3 million. In the North West, the group’s order book of £195.1 million left Carillion ranked sixth and orders totaling £95.6 million in Wales merited eighth place at the end of 2017.

As one of the industry’s biggest players disappears from league tables, an opportunity arises for small-to-medium-sized contractors to make a play for the work that will inevitably come up for grabs after Carillion’s liquidation.

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Surge in detailed planning applications for new homes

The number of homes being proposed in detailed planning applications surged by 20% last year as proposals for private new-build units ballooned to their highest level in nearly 15 years.

Glenigan’s research shows that the number of proposals for private housing surged by 23% to 166,341 units compared to 135,278 units proposed in 2016.
As Glenigan’s research showed last month, the number of units in applications for social housing rose by 8% last year to 25,901 units – up from 24,039 units in 2016. This means that the total pipeline of new homes leapt by 21% in 2017 to 192,242 units.

Glenigan’s economics director Allan Wilen said: “We expect the underlying level of project starts to decrease by around 3% over the course of 2018 as housebuilders prioritise building out developments in fewer sites.

Newly Built UK Homes

“However, the development pipeline remains strong. Approvals have been rising at a healthy rate and the increase in applications in 2017 that this research shows suggests housebuilders remain relatively positive despite a more fragile near-term outlook due to uncertainties over interest rate rises and house prices.”

Glenigan’s research into the levels of units in planning applications started back in 2003, when detailed submissions for new private homes included 119,005 units. As the industry boomed, the pipeline surged to 164,197 units in 2004 only for the development pipeline to slump as the recession bit a few years later. That 2004 total remained unsurpassed until last year’s boom.

Glenigan’s data also shows housebuilders continuing to increase their exposure to more family-friendly houses at the expense of apartments.
Prior to the crash, 33.6% of proposed new homes were apartments and 61.8% were houses, but that changed as the recession led to a serious over-hang of unsold flats in urban locations.

In 2017, the total number of flats in the pipeline did rise 16.5%, but the number of new homes surged by 25%. As a result, the proportion of flats in the planning pipeline contracted to 11.4%, while proposals for some form of house rose to 86.5% from 85.2% in 2016. Applications for flats and homes are still rising, but there was barely any change in the number of applications to build bungalows and the pipeline for retirement homes shrank by 8%.

Mr Wilen added: “This fall may be attributed to the government’s decision to ban the sale of new homes on a leasehold, which was brought in at the end of last year after a campaign in the media. “Our data suggests that appetite for building new retirement homes may have been adversely affected.”

On the day that the ban came into force in December 2017 shares in McCarthy & Stone – Britain’s biggest retirement home builder – slumped by nearly 10% and the company’s chief executive Clive Fenton warned the leasehold ban “will result in a disruption of supply”.

While predictions of disruption in starts in this house type might bear out in the short-term, the pipeline of houses and flats is stronger than ever.