Glenigan Insight
1st December 2009
Welcome to Glenigan's weekly customer newsletter that brings you comment on major industry developments and news updates from the past week.
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Rise in construction insolvencies despite steadier project starts
Featured Region:
Northern Ireland
Featured Sector:
Retail
Project News
Jones Brothers Ruthin awarded contract
Wates awarded academy contract
Work starts on office fit-out
Bowmer & Kirkland awarded contract
Morrison wins £31.6m A96 bypass job in Scotland
Morgan Ashurst bags £4.5m Lancaster Uni eco building
Company News
Sheffield to swot up for top Kier job
Grimshaw's workforce up by nearly a third and still hiring
Aecom announces 350 more job cuts
Atkins profit down 13pc
Galliford Try and Renew Holdings launch appeals against OFT fines
Premier Mortars open new Gateshead Plant
Promotions
Leading Industry Body gives further credibility to eagerly awaited professional networking site
Construction News Offer – Exclusive to Glenigan
The Glenigan Index has seen the flow of new construction projects steady in recent months after the sharp falls endured since the onset of the credit crunch. However, whilst welcome, the industry remains in recession.
Official statistics from the Insolvency Service illustrate how the earlier fall in new work is being felt across the construction industry. At 1,030, the number of construction firms going into liquidation during the second quarter of this year was 58% up on a year earlier and running at around four times the level of two years ago. Similarly the industry has seen a 50% increase in personal bankruptcies over the last year.
Provisional data indicates that the number of casualties remained high during the third of 2009, with an increasing number of firms going into receivership.
Looking ahead to 2010, the industry’s prospects appear brighter. The recent stabilisation in project starts has been largely driven by a rise in government funded work, while a gradual improvement in private sector work is forecast to lift project starts next year. However, this will present new challenges for the industry. Competition for work will remain fierce, but firms will need to be especially alert when pricing work. Whilst material prices and labour rates have been falling over the last year, projects priced during 2010 are likely to be built out during a period of firmer input costs.
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Recent performance
A rebound in recorded project starts during 2008 masked the difficult conditions facing construction in Northern Ireland. Nevertheless whilst the economic downturn has curbed private sector development activity since the turn of the year, the outlook for some construction sectors remains relatively positive.
Glenigan recorded a 19% increase in the value of underlying planning approvals during 2008 as strong public sector spending, combined with previous optimism over the business outlook, led to an increase in approvals across a range of sectors. Whilst planning approvals have subsequently fallen back sharply during 2009, previously approved schemes have progressed to site. For instance, the Northern Ireland Government has significantly increased capital spending in the education sector and the current year has seen a number of school projects starting on site.
In addition, there has been an increase in the flow of new projects in Northern Ireland’s relatively small civil engineering and retail sectors. As a result, whilst project starts are expected to weaken further over the coming 18 months, the decline will not be uniform across the different construction sectors in Northern Ireland.
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Prospects
New project starts in Northern Ireland are forecast to slow during the final quarter of this year. Whilst the value of underlying planning approvals rose 19% during 2008, detailed planning approvals moderated during the final quarter of the year and have continued to weaken during the first nine months of 2009, being 51% down on a year ago.
Planning approvals were supported during the second half of 2008 by an upturn in hotel & leisure, social housing and private housing schemes. This contributed to the rise in project starts during the closing months of last year and these remained growth areas during January to September of 2009.
However, the deteriorating economic environment and the recent dip in detailed planning approvals will increasingly restrict the flow of new project starts over the coming months. Construction starts are expected to fall back during the closing months of this year, limiting the rise in the value of underlying construction starts to 16% for the year as a whole, before slipping back 31% during 2010.
However, the deteriorating economic environment and the recent dip in detailed planning approvals will increasingly restrict the flow of new project starts over the coming months. Construction starts are expected to fall back during the closing months of this year, limiting the rise in the value of underlying construction starts to 7% for the year as a whole, before slipping back 25% during 2010.
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Recent performance
Retailers have been reporting difficult and deteriorating trading conditions as consumer confidence has slumped and households have reigned in their spending. Over the last 12 months, a number of major retail chains have entered into administration, while many others have announced falling sales and store closures.
British consumers are curbing their borrowing and spending in response to the deteriorating economic environment and slowing earnings growth. Household consumption has been weakening progressively over the last year and the volume of household spending in the second quarter of 2009 was 3.4% down on a year ago. Spending is expected to remain subdued through to the end of the current year.
Official statistics recorded a sharp slowing in the volume of retail sales growth during the course of 2008 which continued into the first three months of 2009; retail sales volumes during the first quarter of this year were only 0.6% up on a year earlier. This compares with year-on-year sales growth of 4.2% in the first quarter of 2008. However, retail sales volumes have improved since April, helped in part by falling prices as well as seasonal and weather related factors. Retail sales volumes during July were 3.3% up on a year earlier. Nevertheless, a renewed weakening in retail sales is anticipated over the coming months as the deteriorating labour market and squeezed household incomes prompt consumers to curb their spending. Indeed the pick up may already be losing momentum with retail sales flat during August and September.
The weakening in retail sales growth has been led by falls in non-food sales and, in particular, ‘big ticket’ items, as consumers have deferred discretionary spending. In contrast food sales have held up well, although this is in part due to higher food prices. Most of the major supermarket chains have reported firm turnover growth and increased profits over the last year.
Against this background, the flow of new retail projects starting on site has faltered. The value of underlying retail construction projects fell 23% last year, despite a robust fourth quarter. Moreover, project starts have weakened further since the start of the current year and starts during the three months to September were 43% down on a year ago.
Non-food retail warehousing projects endured the sharpest decline in the value of underlying project starts during 2008, falling by 65%. The traditional occupants of these premises are the white goods and DIY related retailers who have been hard hit by both the fall in consumer confidence and the downturn in the housing market. In addition planning restrictions have limited the scope for upgrading existing premises by installing mezzanine floors to boost floorspace and increase their appeal to traditional ‘high street’ retailers. Against the background of faltering consumer confidence and weakening retail sales, last year also saw a 15% decline in the value of shop & departmental projects starting on site.
Retrenchment in new shopping centre activity continued during 2008, the value of underlying project starts falling 10%, a third consecutive annual decline. In addition the only major shopping centre scheme to start on site during the last year is the Stratford City development, while last year saw the completion and opening of flagship schemes in Bristol, London and Liverpool, while more recently the major new shopping centre in Cardiff has opened its doors. As a result, the pool of projects under construction has continued to dwindle, despite work commencing on the Stratford scheme.
Whilst the flow of new supermarket projects also slowed last year, the major supermarket chains have reported continued earnings growth and remain committed to store expansion and refurbishment programmes. As a result, supermarket projects are set to be a relative bright spot within the retail construction sector during 2009.
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Prospects
Retail construction fortunes will remain closely tied to trends in household consumption over the next two years. Many high street retailers have reported a fall in profits over the last year and retail spending is expected to remain weak into 2010. CB Richard Ellis has recorded a softening in rents over the course of last year, with shop rents falling at 4.4% over the year to April 2009, while capital values have fallen 26% over the last 12 months.
In addition, a number of high profile retail bankruptcies and store closures by struggling chains have also added to the stock of available vacant shop premises. A recent survey by the British Retail Consortium estimates that vacant premises now account for 12% of high street floorspace, against 7% at the start of the year, and the study forecasts that vacancy rates will rise to 15% by the end of the year. Understandably, retail developers will remain cautious until the demand for retail space improves.
In contrast, the major supermarkets are performing better than most retailers and many are pressing forward with expansion or refurbishment plans. Indeed, J Sainsbury has raised £445 million via a share placing and convertible bond issue to fund an acceleration of its expansion programme. The company plans to increase its gross floorspace by at least 15%, equating to 2.5 million sq ft of additional selling area, by March 2011.
Furthermore, the current economic climate is helping value-based grocers. According to TNS Worldpanel, Asda, Aldi and Lidl have all increased their market share. The rise of the value-based grocers is creating new construction opportunities. Aldi has indicated that it will spend £1.5 billion over the next five years on expanding its store network in the UK and Ireland.
Nevertheless underlying planning approvals weakened considerably during the latter part of 2008 and the first half of this year. This has been accompanied by a marked increase in the number of projects being put on hold. Glenigan has identified some £1.8 billion worth of work that has been placed on hold over the last year. Following the contraction in the development pipeline, the value of underlying project starts during January to September was 38% down on a year ago and is forecast to remain weak throughout the final quarter of the year (see table below). Based on projects we are currently tracking, we forecast that the value of underlying retail construction starts will suffer their third consecutive annual decline this year, falling by 38%. However, looking forward, prospects for retail construction from 2010 appear more robust and the flow of construction schemes is projected to subsequently rebound strongly in 2010, albeit from an extremely low base.
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Project News
Jones Brothers Ruthin awarded contract
Gwynedd County Council has appointed Jones Brothers Ruthin (Civil Engineering) Ltd to carry out the coastal defence works at Tywyn in Wales. The £5.5 million scheme will involve the construction of a new 22,500 sqm rock breakwater above low tide level, rock groynes, removal and replacement of timber groynes, reconstruction of a slipway, 400m of rock revetment and replacement steps to the lower part of the sea wall repairs. The contract was awarded under an early contractor involvement and is work is to commence on site March 2010, to be completed by March 2011.
Project ID:
07480653
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Wates awarded academy contract
Wates Construction Ltd from Leatherhead has been awarded the main contract for the construction of the new Hammersmith Academy. The £17 million scheme for Hammersmith Academy Trust will be built at the Former Stamford House Site at Cathnor Road in London and has been designed by Barnsley Hewett & Mallinson. Works are due to commence January 2010.
Project ID:
08033783
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Work starts on office fit-out
Main contractor Bowmer & Kirkland Ltd has now started on site for a £8.6 million development for client Npower. The site at Rainton Bridge Retail Park in Houghton-Le-Spring will see the fit-out of offices to accommodate 900 members of staff.
Project ID:
09371281
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Bowmer & Kirkland awarded contract
Bowmer & Kirkland Building Services has been awarded the main contract for the construction a three-storey 20-bedroom parental accommodation building with day use facilities in association with Birmingham Womens Hospital, to be built at Metchley Park Road in Birmingham. The £2.5 million scheme for Ronald McDonald House has been designed by AEW Architects. Works are due to commence Spring 2010.
Project ID:
09200818
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Morrison wins £31.6m A96 bypass job in Scotland
Galliford Try subsidiary Morrison Construction has scooped a £31.6 million contract with Transport Scotland to design and build the A96 Fochabers and Mosstodloch Bypass. The project will re-route the A96 trunk road around the towns of Fochabers and Mosstodloch - approximately midway between the cities of Inverness and Aberdeen - as opposed to the current lay-out which runs directly through the towns. Associated works to be carried out include earthworks, drainage, road markings, signing, bridges, minor structures, environmental barriers, accommodation works, service diversions and incorporate a five year defects rectification period. Transport Scotland has estimated that the project will be completed in 2011/12.
Project ID:
94285425
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Morgan Ashurst bags £4.5m Lancaster Uni eco building
Morgan Ashurst has won a £4.5 million contract to build the eco-friendly Lancaster Institute for the Contemporary Arts for Lancaster University in Bailrigg, Lancaster. The building is one of the first higher education facilities in the UK aiming to achieve the 2009 BREAAM HE rating of Outstanding. Morgan Ashurst will use off-site construction techniques to build a 3,000 sq m timber-frame building, which will provide a new arts hub for four academic groups - Art, Design, Music and Theatre Studies. The centre will house three inter-linked arts performance 'event spaces,' studios for installations and design, acoustic rooms, imagination laboratories and rooms for post-graduate research and administration. The contract is due to be completed in June 2010.
Project ID:
09050240
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Company News
Sheffield to swot up for top Kier job
Kier chief executive-in-waiting Paul Sheffield has told Construction News he will spend the next four months immersing himself in parts of the business he is not currently involved in. The head of Kier's construction division was last week announced as the successor to current chief executive John Dodds, who will step down in March after 40 years with the group. Between now and the handover expected at the beginning of April, Mr Sheffield will work closely with Mr Dodds, meeting his key contacts from within the industry and in Government. Mr Sheffield, who joined Kier as a graduate civil engineer in 1983, will also spend a great deal of time learning the ins and outs of the divisions he has not been involved so closely with, such as housing and support services.
The 48-year-old said: "My position is to head construction development, and obviously I know that side of the business very well. "I will spend the next four months focusing on the other areas of the business, such as housing development and support services, making sure I have a deep knowledge of the business overall." Mr Sheffield was appointed managing director of Kier Construction in 2001 and assumed responsibility for all of the group's construction activities in November 2008. Mr Dodds, 64, joined Kier in 1970 and was a member of the board that led the employee buy-out of Kier in 1992 from Hanson. The outgoing and incoming chief executives of the company have worked together for more than 25 years.
Mr Dodds said: "I am absolutely convinced that he is the right man to lead Kier into the future. "Paul is highly talented and I look forward to working with him to ensure a seamless transition during the lead up to my retirement." Mr Sheffield added: "John has got a lot of experience in this industry getting this business through good and bad times. There will be an awful lot of wisdom that he can impart on me." Mr Sheffield paid tribute to the staff around him, who he said helped him to secure what he believes is one of the top jobs in the industry. He said: "I feel very privileged to be asked to do this job. I am quite humbled but to be frank it is recognition of all the great people who work with me. You cannot do a good job unless you have good people around you. "My appointment is a reflection of the quality and strength of the people around me."
Mr Sheffield said that currently no appointment had been made for a replacement head of construction. But he added that there were plenty of people within the group who would make good candidates.
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Grimshaw's workforce up by nearly a third and still hiring
Grimshaw's workforce has risen by 30 per cent in the last year and is continuing to look for staff across its three offices. The outfit has been steadily moving up the AJ100 league table of the UK's largest practices, having shot from 89th in 2005 to 39th this year. Now the practice has announced it had succeeded in 'maintaining a strong workload' through 2008/2009 - despite the economic turbulence - and was even recruiting. In London, the company says it has seen staff numbers grow from 112 (52 qualified architects) in early 2008 to nearly 150. The New York office has almost doubled in size, increasing from 40 to 70 and the Melbourne outpost is also dong well. A statement released by the practice reads: 'Towards the end of 2008, we did unfortunately have to make a handful of redundancies. We also needed to concentrate harder than ever on balancing our costs with our fees.'
'However, since this time we have been awarded several new projects and have had to actively recruit staff to fill vacancies. We are happy to now find ourselves in the position of potentially leaving this recession stronger than we went into it. It goes on: 'When the recession hit, we made a definite decision not to chase inappropriate new work. Instead, we identified the strengths of our practice and placed a strong focus on attracting new work in these areas. 'Consequently, the last year has seen us win a combination of projects across a range of sectors. Most importantly, we have found new clients with high aspirations, and projects that are fascinating for everyone involved.'
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Aecom announces 350 more job cuts
Consultant Aecom said this week it was cutting 350 jobs in the UK and Europe, citing the ongoing effects of the recession. This is on top of 119 job cuts made last year. Chief executive Ken Dalton told staff on Tuesday that falling orders over the last four months was to blame for the latest cut, which represents some 8.8% of staff. "The outlook across many of our sectors is not predicted to recover for some time." Aecom chief executive Ken Dalton "During the early parts of the summer we were hopeful that the actions we had taken during the course of the year were sufficient to sustain the level of business that was being won by the company," said Dalton. "However, during the last four months we have seen a further downturn in our order book and the outlook across many of our sectors is not predicted to recover for some time," he said. Areas hit hardest will be in private sector buildings, transport infrastructure and design and planning. The firm's water division is also suffering from the hiatus in workload caused by the industry's five yearly spending cycle.
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Atkins profit down 13pc
Atkins has reported a 13 per cent drop in first half pre-tax profit but said it is confident about the second half of the year. The consultant's results for the six months to 30 September 2009 showed profits slipped to £43.5 million from £50 million the previous year. Turnover was down to £701.2 million from £710.8 million the year prior. The group's average staff numbers reduced 4 per cent to 16,923 from 17,713 the prior year with the firm cutting costs to manage the recession. Net cash increased 40 per cent to £230.6 million from £164.5 million last year.
Atkins has secured 90 per cent of its full year forecast turnover already compared to 87 per cent at this time in 2008. Atkins bosses said that despite the challenging market conditions they are confident that the group is well placed to make good progress in the second half of the year. Atkins chief executive Keith Clarke said: "Our performance over the six months demonstrates our ability to respond quickly to changes in the marketplace and to flex our resources to meet expected demand. "The quality of our engineering capability and our strong client relationships position us well for the opportunities and challenges ahead."
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Galliford Try and Renew Holdings launch appeals against OFT fines
Galliford Try has announced it will appeal the £8.3 million fine levied against it by the Office of Fair Trading following its major cover pricing inquiry. The contractor told shareholders: "Following the company's announcement on 22 September 2009 on the decision of the Office of Fair Trading following its investigation into the construction industry in England, Galliford Try announces that it has submitted an appeal to the Competition Appeals Tribunal in respect of the size of fine imposed on the company." The Uxbridge-based firm was one of 103 firms fined a total of £129.5 million in September. Renew Holdings also said today in its annual report that it had appealed against the £500,000 levied on Allenbuild and a £3m fine handed down to Bullock Construction, adding: "Having taken legal advice, the board believes that Renew will have no liability in respect of the Bullock fine."
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Premier Mortars open new Gateshead Plant
Despite difficult trading conditions generally that have led many in the Industry to hold back on capital expenditure, Marshalls continue their support for Premier Mortars with the opening of their new plant in Gateshead. Managing Director Nick Bebb was presented with a Plant Handover Certificate from Seamus McCrory of McCrory Engineering who are based in Northern Ireland and supply concrete and mortar plants worldwide.
It is the third time Premier Mortars have bought from McCrory following their successful quality plant installations in Wolverhampton and Stockton on Tees. To celebrate the occasion Premier Mortars held an open day for members of the construction industry.
Nick Bebb commented “we are delighted with the opening of the new Gateshead plant which will enable the success already achieved with the plant at Stockton on Tees to be built upon and help reduce logistic issues and therefore provide customers with the service they expect in the area. The new installation builds upon the quality controls supported by independently assessed Quality Assurance and Integrated Management Systems rolled out throughout the group.”
Premier Mortars expect to be able to provide their North East customers with superb quality materials supported by a local team who will provide the service their customers expect. Premier Mortars recently introduced a “Guaranteed Delivery Service” to ensure that Brickies aren’t left waiting for material to be delivered.
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Promotions
Leading Industry Body gives further credibility to eagerly awaited professional networking site
The Chartered Institute of Building (CIOB) is set to become the main and exclusive partner of the Construction Network (tCn).
Launching in early 2010, tCn will deliver the UK’s first fully interactive and professional online networking facility exclusively for those in property, construction and the built environment. Aimed at Professional Practices, Contractors, Sub-Contractors, Developers, Suppliers, Manufacturers and Clients, information will flow between individuals and organisations for the benefit of all like never before.
Michael Brown CIOB Deputy Chief Executive said, “We are delighted to be a part of this exciting venture. This technology really does allow us to engage our fragmented industry in a way that has never been possible before. The network will link users together and create a free exchange of information, with the potential to generate business opportunities as well.”
Glenigan are proud to be one of the first to recognise tCn's potential and will have a strong presence on the site.
Corporate subscriptions are still available and would encourage anyone that is interested to visit the preview site or email the team via info@tcn.uk.com.
Register your pre-launch interest or find further information at www.tcn.uk.com
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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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