Weekly Glenigan Newsletter - 20th July 2010
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past week. Click on the links to read the full story.
Large office developments
postponed, as value of shelved projects drops
overall
Featured Region: London
Featured
Sector: Infrastructure
Project News
Applications to tender for
framework developer
Plans unveiled for biomass power
station
Severn Trent Water assessing
tenders
Morgan Sindall scoops £5m
Sunderland Uni scheme
Crossrail 'offers value for money',
says Villiers
Tenders invited for school
extension
Company News
Positive start to financial year
for Mitie
Strong second half for Barratt
leads to profits up
Low & Bonar boosts revenue and
profit
Kier buoyed by market
upturn
Interserve expect strong year with
£6bn order book
Cyril Sweett acquires Asian QS firm
Widnell
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Large office developments
postponed, as value of shelved projects drops
overall
The number of projects being put on hold during 2010 has fallen
consistently since last summer, due in part to fewer projects being
planned and subsequently starting on site during 2009.
With less credit available, and businesses reigning in spending
in the face of reduced revenues during the recession, only the
cream of planned projects made it through to construction last
year. This meant that of the projects to reach the start on site
stage, there were fewer that were likely to be shelved.
Additionally, returning confidence in the private sector has also
helped reduce the number of postponements and cancellations over
the first half of 2010 – particularly in the residential
sectors.
The number of projects that went on hold was down 64% over the
three months to July, compared to the same period last year. The
underlying value of projects (i.e. <£100m) that were placed on
hold fell quicker, by 71%, during the second quarter of the year
compared to a year ago.
30% of all projects put on hold during the month of July were
offices, which was significantly larger proportion than the recent
past: over the last 12 months, office projects only accounted for
13% of postponements. There were three large projects in particular
that were to blame for this spike. Two office buildings in London,
worth a combined £160m, and a £90m development in Leeds were
shelved last month. Because of this, London suffered the biggest
loss of value due to postponements during the month of July than
any other region.
In contrast, education experienced the biggest percentage drop
in projects being put on hold over the three months. However, this
picture is misleadingly optimistic, as many projects have now been
cancelled, having been on hold, due to the termination of the
Building Schools for the Future (BSF) programme by the coalition
government. Indeed, like many other sectors, education has already
seen an increase in the value of cancellations. Even before the
full impact of the BSF closure had has been calculated, education
accounted for 37% of all cancellations in July.
The good news is that there has been a significant rise in the
value of projects which, after being put on hold, have then been
restarted. Across the country, restarts rose by over a third last
quarter compared to the previous three months. This was supported
in particular by the office and private housing sectors, which both
saw substantial increases. The robust flow of restarted private
housing schemes, which accounted for 37% of project restarts last
quarter, is good news for a sector which is still recovering
following last year’s retrenchment.
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Featured region: London
Recent performance
Construction starts in London fell sharply in the fourth quarter
of 2008 as the worsening economic conditions took hold of the
Capital. The value of underlying construction starts continued to
slide during 2009, with starts 11% down on a year earlier.
With financial and property-related firms reducing their
workforces, many developers have put planned office construction
projects on hold. The value of underlying office starts, which
accounted for around a quarter of the value of underlying
construction starts during 2007, fell by a third during 2008. The
flow of new office projects continued to deteriorate last year,
running at half the level of a year earlier. That said, some
developers are still pressing forward with major office projects
and these have provided some support for the region’s office
starts.
Construction in London continues to benefit from preparations
for the 2012 Olympics. The £303 million Aquatics Centre and the £80
million Velopark are among the high value stadia projects to have
started on site over the last year, while work has also started on
the Olympic Village.
Tighter mortgage conditions and sustained pessimism in the
residential housing market had a severe impact upon private housing
construction in London. Having initially held up well, sector
starts in the capital followed a similar trend to the rest of the
country. The value of underlying private housing starts fell 27%
during 2008 and during the first half of 2009 were 36% down on a
year earlier. However, project starts subsequently picked up during
the second half of 2009, cutting the decline for the year to 11%.
During the first five months of this year the sector continued its
recovery, growing by almost 50% compared to the same period of
2009.
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Prospects
Immediate construction prospects in London remain gloomy. The
value of projects in the pre-construction pipeline has dropped
sharply, with underlying planning approvals falling by 12% in 2009.
This is forecast to further weaken the flow of new project starts
during 2010, especially during the first half of the year (see
Table 20). However, this overall fall masks a sharp rise in
planning approvals during the third quarter, which has continued
into this year: driven by a rise in private housing and
non-residential approvals, this improvement suggests improved
developer confidence regarding the medium term market prospects in
the capital.
Nevertheless private housing and offices endured the brunt of
the downturn in construction starts for much of 2009. Although the
recent pick up in private housing starts is encouraging, these
sectors are expected to remain under pressure during 2010.
While there was a modest strengthening of project starts last
quarter, private housing construction in particular will be
vulnerable to any renewed weakening in the conditions in the London
property market. Looking further ahead, the recent pick-up in civil
engineering and private housing approvals points to a possible end
to decline in 2011.
Overall, Glenigan expects the project starts value to
deteriorate further, with the value of underlying construction
starts forecast to fall by 8% this year. However, project starts
are predicated to subsequently stabilise over 2011.
However, if key large projects continue as planned, these will
ease the pain of some parts of the construction industry in London.
Prospects for London should also have a lift as the approaching
London Olympics are also expected to boost construction
opportunities over the next eighteen months with the games acting
as a catalyst for private sector investment in related areas such
as hotels.
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Featured sector: Infrastructure
Recent performance
Large projects with a construction value of £100 million or more
have increasingly dominated the flow of new project starts during
2008 and 2009. The value of underlying project starts, which
excludes £100 million plus schemes, fell by 17% during 2008.
Despite this underlying decline, overall sector starts rose sharply
thanks to an increase in major transport projects. These schemes
helped to sustain the sector activity during 2009, countering the
slowdown in underlying project starts during 2008 and the first
half of last year.
Regionally, only the East of England, the West Midlands and
Yorkshire & the Humber enjoyed a rise in the value of
underlying project starts during 2008. Growth last year was more
broadly spread, with only the East of England, the East Midlands
and Scotland enduring a drop in underlying project starts.
In addition, whilst the value of underlying project starts
during 2009 was 3% up on the previous year, major schemes—including
the £275 million Blackfriars Station redevelopment and the £6.3
billion M25 widening contract—almost trebled the overall value of
project starts. Again, these large projects will boost sector
activity over the next two years.
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Prospects
Whilst the first three months of the last financial year saw
underlying project starts slip back against a year ago, as
anticipated, underlying project starts have subsequently
strengthened (see table below). After an extremely weak start to
2009, the flow of projects at the detailed planning stage has
strengthened markedly. As a result the value of underlying detailed
planning approvals during 2009 was 27% up on a year earlier and is
expected to help support a further rise in new projects starts
during the coming year. 2010 is not expected to be a strong year
for project starts, however next year should bring a recovery in
new work. 2010 is not expected to be a strong year for project
starts, however next year should bring a recovery in new work.
In addition, major projects (schemes of £100 million or more)
account for a significant proportion of overall sector workload. A
clutch of major projects starts will help boost overall sector
activity over the next two years. Several large road contracts
started on site last September and October and these, combined with
more recent scheme starts such as the M80 upgrade and the £6.5
billion M25 motorway widening, will help lift sector output.
Preparations for the London Olympics will also stimulate transport
infrastructure construction starts in the Capital. Rail will be a
key sub-sector over the next eighteen months, with preparatory
works for the £16 billion Crossrail scheme recently starting on
site and work continuing on Thameslink.
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Project News
Applications to tender for framework
developer
London Borough of Brent is inviting
applications to tender for framework developer partners to fulfil
housing requirements as part of the regeneration programme for
South Kilburn. The final date for the receipt of requests to
participate is 31st August 2010. Tenders are expected to be invited
21st September 2010. Works for the £137 million scheme will involve
the development of 1,800 units at Cambridge & Wells Courts, Ely
Court Hicks Bolton and Bond House, Bronte House, Fielding House,
Wordsworth House, Durham Court, Carlton House, Peel Precinct,
Hereford House, Albert Road West and Queens Park Roundabout site.
Works are expected to start on site early 2011.
Project ID: 10285761
Plans unveiled for biomass power station
Real Ventures Ltd has unveiled proposals for a £130 million biomass
power station. The Reality Energy Centre is proposed at an old
council landfill site in Stag Lane, Newport. As part of the plan,
developers also plan to create a wildlife sanctuary on part of the
8.7 hectare (87,000 sq m) site. Detailed plans are expected to be
submitted late 2010.
Project ID: 10285758
Severn Trent Water assessing tenders
Tenders have been returned to Severn Trent Water Ltd for the £450
million Sewerage Management Services Framework. Contractors are
expected to be announced in the Autumn 2010 with the contract
commencing late 2010. Bidders include Interserve, Enterprise, North
Midland, May Gurney & Forkers. The contract period is 120
months.
Project ID: 10098301
Morgan Sindall scoops £5m Sunderland Uni
scheme
Morgan Sindall has won a £5.2 million project to renovate the
University of Sunderland's Sciences Complex. The contractor will
modernise 4,220 sq m across four buildings at the city campus on
Chester Road and improve access to the facility with the creation
of a new glass atria entrance linking of the Dale and Pasteur
buildings. The ground floor of the two buildings will feature a
main reception with seminar rooms, IT facilities and a helpdesk, a
boardroom and social learning space. The first floor of the Dale
building will accommodate staff offices while a physiology
laboratory and human performance laboratories will be added to the
Darwin building and existing laboratories in the Fleming building
will be refurbished. A Quad for theatre and music events will also
be created and will connect the Sciences Complex with the CitySpace
sports and social centre, which was recently completed by Morgan
Sindall. This is the second scheme Morgan Sindall has won as part
of the university's £75 million regeneration programme. The project
is due to be completed by December 2010.
Project ID: 09076562
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Crossrail 'offers value for money', says
Villiers
Transport minister Theresa Villiers said the
£15.9bn Crossrail project will generate 'high value for money'
after it emerged the scheme has already received almost £800M of
public money. Figures show Crossrail has spent £1.16bn, with
£773,769,000 provided by the Department for Transport and Transport
for London since July 2008. In an annual update to MPs, Villiers
said Crossrail's forecasts indicated the project, which will
provide a high frequency rail route linking Heathrow in the west to
the City of London and Canary Wharf, "can be delivered within the
funding available". She added: "Crossrail will support economic
growth for London and the UK and, as the coalition agreement made
clear, is supported by government. "Recent work to update the
business case indicates that the project will generate high value
for money."
Project ID: 03429706
Tenders invited for school extension
Ravenscourt Park Preparatory Partnership is currently inviting
tenders for the extension to Ravenscourt School, 4-14 Ravenscourt
Avenue, London. The development, designed by Barnsley Hewett &
Mallinson, will include the construction of a part two, part three
storey building to provide hall, 9 classrooms, library, arts and
craft studio, special education needs room, staff room, groups
works room, music classroom and practice room. Tenders for the £2.5
million project are due to be returned on the 30th July 2010.
Project ID: 08458474
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Company News
Positive start to financial year for
Mitie
Mitie has secured 78 per cent of expected revenue for the financial
year ending 31 March 2011 in a positive start to the year, the firm
said. The update said the same percentage of forward sales had been
booked at this point in the last financial year too. Current
trading is developing as expected, with no material effect in its
public sector markets, while most of its current central Government
bidding activity is centred around contracts for the 2011/12
financial year. Sectors in which it is struggling include new build
housing and fit-out. The statement said: "In certain capital spend
based markets, such as new build housing and fit out, we have
experienced challenging conditions for some time, resulting in
uncertainty on project timing.We will continue to monitor the
timing of programmes as the year progresses." The firm was keen to
point out that while there is uncertainty over the short term on
public sector contracts, the long term market in this area remains
positive. Mitie has been increasing its presence in Europe, rather
than focus purely on its core UK market. FM and property support
services in Europe is expected to be a growth area in the years
ahead. Further acquisitions are expected to enhance the European
division. The group is expecting further profit growth in the year
ahead, with the statement adding: "Mitie is well-positioned to
support its clients to drive down their costs through large scale
and scope outsourcing programmes, and with a diverse client base
and sector exposure remains positive about the opportunities for
growth." "Whilst recognising uncertainties in certain markets, the
group is on track to continue its record of sustainable profitable
growth."
Strong second half for Barratt leads to profits
up
Barratt experienced a solid second half of its financial year, with
higher sales and margins leading to a profits upgrade and a better
than expected reduction in its debt, the firm said today. In a
trading statement to the Stock Exchange Barratt said housing
completions came in at 6,324 units in the second half of Barratt
Developments' financial year, meaning 11,377 sales were completed
for the full year. While this is behind the 13,277 completions last
year, it is ahead of previous expectations. Further highlighting
the strength of the second half, full year average selling prices
were up 11 per cent to £174,000. The figure for the second half was
an increase in selling prices of 18 per cent. On the back of the
strong results, it gave guidance that it expects to report
operating profit of at least £85 million for the financial year.
The firm's debt position has also improved significantly over the
last year. In a previous update to the stock exchange, it said debt
was expected to be £500m at the year end. Its actual performance
has been significantly better, with a figure of £375m expected.
Barratt chief executive Mark Clare said: "In the last six months we
have driven a significant improvement in operating margin,
delivered a profit for the Group, and reduced debt levels by around
£230m. This improved operating performance, combined with our
success in agreeing terms on higher margin land means that the
Group is well positioned to secure further margin growth in what
continues to be a challenging market." A shift towards selling
houses, rather than flats, has helped to push up average selling
prices. In the financial year ended 30 June 2010, houses
represented 60 per cent of completions, rather than 46 per cent
previously. Barratt re-entered the land market in mid 2009 and has
since agreed to buy land worth £527.2m, mainly with deferred
payments.
Low & Bonar boosts revenue and profit
Performance materials supplier Low & Bonar has posted increased
revenue and profit in its half-year results. The company, which
manufactures products used in road and rail building as well as in
commercial construction, secured sales of £155.8 million in the six
months to 31 May 2010. This was up 11.7 per cent from £139.5m in
the same period last year. Pre-tax profit was £6.7m in the six
months to May 2010, compared with £5.1m a year earlier. The firm
was able to reduce its net debt from £98.7m last May to £67.4m this
year. Low & Bonar chief executive Steve Good said: "The group
has moved firmly forward on its organic growth agenda during the
first half, and delivered solid progress towards its medium-term
financial targets, which were set in February this year. "The much
improved sales pattern established throughout the second quarter
has continued into the start of the second half and our joint
venture grass yarn production facility in Abu Dhabi is now in
commercial production. "In our trading update of 4 June 2010 we
indicated that trading was better than our original expectations
for the full year, and our view remains unchanged."
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Kier buoyed by market upturn
Contractor Kier has flagged a revival in the commercial building
market as it reported an increase in annual profits at the top end
of market hopes. The Bedfordshire-based firm said it had secured
high volumes of work and added that previously mothballed private
commercial projects were being resurrected as funding becomes
available. The upbeat comments, which lifted shares 4%, are welcome
after gloom in the sector last week as the Government took the axe
to the Building Schools for the Future (BSF) project. Kier is
braced for further cuts but said its exposure to the BSF project
was not 'material'. The firm said its building business was focused
on more 'non-discretionary' areas such as power and utilities,
while it also hopes for a boost from the recently approved
Crossrail cross-London rail link. Kier also hopes to grow revenues
in overseas markets as it establishes itself in markets including
Saudi Arabia, Abu Dhabi, and Hong Kong. 'Whilst we continue to
operate in a challenging environment, our integrated business model
provides us with the ability to seek out and create new
opportunities,' the company said. Group Finance Director Deena
Mattar plans to leave the company this November. She is to be
replaced by Haydn Mursell, the current deputy group finance
director at Balfour Beatty.
Interserve expect strong year with £6bn order
book
Interserve remains confident of a 'strong year' in 2010 with a
future workload of £6 billion despite concerns over the impact of
planned public sector cuts in the UK. In a trading update, released
today, the firm said that had traded in line with expectations in
the first half of 2010 but it expects the second half of the year
to be more profitable than usual. The contractor said that it was
benefitting from its international markets having recently boosted
it order book in the Middle East including a recent multi-year
highways maintenance contract in Dubai. Interseve expects its UK
construction and facilities management businesses to perform well
in 2010 regardless of changes in public sector work resulting from
the new Government. The statement said: "Looking forward, we have a
significant international exposure and a future workload of
approximately £6bn, despite uncertainties regarding the impact of
planned cuts in UK public sector spending. "This affords the group
strong visibility of around 90 per cent and 60 per cent of 2010 and
2011 anticipated revenues respectively. We remain confident in the
long-term prospects of the Group."
Cyril Sweett acquires Asian QS firm
Widnell
Cyril Sweett Group has officially acquired Asia-based quantity
surveyor and project management firm Widnell after an initial
agreement in March. The firm, which employs over 400 people across
9 offices in Asia, will now merge into the group to become Widnell
Sweett and will operate in Hong Kong, China and Macau. Cyril Sweett
chief executive Dean Webster, said: "China provides a key growth
opportunity for the Group and Widnell Sweett provides the Group
with the means to unlock that market. "The Group's strategy is to
diversify the business across territories and sectors that are
forecast to grow, whilst consolidating our presence where the
business has a market-leading position. We are delighted that this
deal fits squarely in line with our strategy". The Cyril Sweett
Group now employs more than 1,200 people, in 44 offices across
Europe, Middle East, North Africa, India, Sri Lanka, Asia Pacific
and Australia.
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Allan Wilén, economics director,
Glenigan
Allan joined Glenigan to head the development of the new market
intelligence service for Glenigan subscribers. Allan has over
twenty years of experience analysing and forecasting the UK
construction industry. He was previously Economics Director at the
Construction Products Association and responsible for all economic
aspects of the Association’s activities. This included briefing
members, the media and Government on the commercial implications
for the construction industry of the changing economic environment
and the delivery of the Government’s expenditure plans. Allan was
also responsible for developing the wide range of regular economic
reports published by the Association, including its Construction
Industry Forecasts, which provide members with timely and valuable
market intelligence.
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