Glenigan Insight
5th January 2010
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2010 - Tentative recovery and fresh opportunities
Featured Region:
South West
Featured Sector:
Utilities
Project News
Tenders invited for 15 homes
Urban Initiatives awarded contract
Tenders invited for hospice
Tenders invited for sheltered flats
Framework contractors appointed for public realm
Company appointed for asbestos works
Company News
Kier/Murphy/Interserve scoop £114m Preston storm water contract
Wilson Bowden shelves Macclesfield town centre plans
Gifford expands its Board of Directors
Mott MacDonald Bentley wins £60m Yorkshire reservoirs framework
Neptune to rescue stalled Liverpool site
Galliford Try confirmed for Cambridgeshire BSF
There are tentative signs that the UK economy is now emerging from recession. However, the recovery is expected to be slow, protracted and vulnerable to setbacks. The same can be said for construction, but 2010 will nevertheless herald new opportunities for the industry.
The flow of new projects stabilised during the second half of last year, in large part due to an increase in Government funded work. Unfortunately the value of underlying project starts remains some 20% off pre-recessionary levels and the earlier decline is still impacting upon industry workload. Accordingly construction output is set to fall back this year, despite an anticipated improvement in project starts.
The recovery in project starts will also be slow and fragile. In particular, whatever its outcome, the General Election expected in early May will bring new challenges and opportunities for the industry.
Higher public sector capital expenditure has been an important driver for industry growth over the last 10 years and helped offset the slump in private sector work during 2009. However, a long term reduction in public sector spending is already planned and the industry will be vulnerable to a further tightening in public expenditure post- election. In addition the tax burden is also likely to rise as the Government seeks to curb the budget deficit; tempering the revival in consumer related areas such as private housing.
Nevertheless opportunities remain. 2010 is forecast to see an overall pick up in the value of construction starts. Prospects appear brightest in the civil engineering sector, but overall improvements are also anticipated in the flow of housing and non-residential projects. Even within the government funded areas, new opportunities will emerge. Whilst spending programmes will be subject to review following the General Election, the new Government will still be keen to press on in priority areas. Furthermore a cash-strapped public sector is likely to look to private sector funding and the construction industry to help deliver the necessary investment.
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Recent performance
There has been a marked deterioration in market conditions in the region since the middle of 2008 as the credit crunch and deteriorating economic prospects have depressed private sector activity. Official statistics reveal that the value of construction output rose 1% last year, but that a firm first half was largely offset by a 4% fall in output during the final six months of the year. The fall in output has been even more dramatic during the first half of this year, being 12% down on a year earlier.
The flow of new projects faced a similar mid-year reversal of fortunes during 2008, following a sharp downturn in detailed planning approvals. Projects starts were especially weak during the third quarter. Accordingly, while the value of underlying construction starts fell by only 6% during the year as a whole, project starts during the second half of the year were a third lower than during the final six months of 2007.
Private sector related construction in the South West has experienced a large contraction in the value of projects moving through to the start on site phase. After a strong start to the year, the flow of new private housing work collapsed during the second half of 2008. The value of project starts during the final six months of 2008 was half that of a year earlier, dragging the total value of underlying private housing starts down by 8% for the year as a whole. The deterioration has accelerated during the current year, with underlying project starts during January to November down by a third on a year ago, despite the noted pick-up in project starts during the third quarter.
More encouragingly, the value of civil engineering projects starts during the first eleven months of 2009 was more than double that of a year ago, in large part due to work commencing on the £87 million Weymouth Relief Road and to a £98 million energy-from-waste plant in Jersey.
In addition public non-residential sector starts have strengthened as the year has progressed, benefitting from the release of promised additional government funding. Health and social housing starts in particular have risen strongly during 2009, being respectively 87% and 48% up on a year earlier. Nevertheless the increase in civil engineering and public sector building projects has been insufficient to fully offset the fall in private sector work, with the value of underlying projects starts in south west slipping by an estimated 1% during the year as a whole.
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Prospects
The region’s exposure to the private housing sector has accentuated of the impact of the economic slowdown upon the flow of new project starts over the last two years. Private housing projects accounted for a third of all project starts (by value) in the South West during 2008, compared to a UK average of 25%. Detailed planning approvals for private housing projects during January to October 2009 were 49% down on a year ago, pointing to further sharp declines in private housing starts near term.
More encouragingly, excluding private housing, the decline in detailed planning approvals does appear to be moderating, while planning approvals for health and leisure projects during the first ten months of 2009 were up on a year ago. This is expected to help stabilise project starts during the closing months of the year.
Looking ahead the flow of project starts is forecast to strengthen modestly over the next two years, albeit from a low base, with starts rising by 2% and 6% respectively during 2010 and 2011. In particular, the importance of the private housing sector to construction activity in region is expected to be a positive influence from next year as conditions in the wider housing market gradually improve. Against this, the important boost to project starts from increased government funding during 2009 is likely to be reversed over the next two financial years as following the general election the new Government addresses to reduce the budget deficit.
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Recent performance
Construction starts for the utilities sector performed strongly during 2008. The upward trend accelerated during the first eleven months of 2009, with the value of underlying construction starts rising by 13% year-on-year. The rise was driven by several mid-sized construction projects in the water and renewable energy sub-sectors.
The strong interest in wind farms (and other renewable energy options) is benefitting Wales. The underlying value of construction starts rose 74% in the region during 2008, and although project starts have slipped back during 2009, they remain at a high level. In addition during the third quarter of 2008, work started on site on a £450 million gas-fired power plant in Wales.
Major schemes have also boosted utilities construction starts in other parts of the UK over the last year. While Scotland has seen work start on site on a £2 billion biomass CHP project and several offshore wind farms, London saw work start on the £200 million Beckton desalination plant. In addition, construction commenced on a £350 million recycling plant in the East of England. Major projects have continued to boost the overall value of project starts during the first nine months of 2009, which was almost treble that of a year ago. However, the contribution of these major projects to sector workload will be spread over a number of years and the scope and timing of some projects, such as large offshore windfarms, may yet be vulnerable to re-appraisal even where preliminary works are now underway.
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Prospects
Prospects for the next 12 months remain bright. Government policies are providing a strong investment incentive in the energy sub-sector. In addition, both the water utilities and several major UK ports are pressing forward with strong investment programmes. That said, the fallout from the credit crunch may hamper utilities’ access to capital funding, albeit to a lesser extent than faced by developers and housebuilders, which could delay some project starts
Whilst long term prospects for the utilities sector remain bright, the value of underlying project approvals fell by 23% during 2008. This decline appears to have tempered the flow of new project starts during the closing months of 2009.
Nevertheless the sector, which tends to have longer lead times, is benefitting from a relatively strong pre-construction pipeline. For instance, several wind farm projects are scheduled to start on site over the next twelve months; although, it should be added that such projects are politically sensitive and vulnerable to delay. Underlying projects starts are estimated to have risen by 11% during 2009 as a whole, and to are forecast to rise by a further 13% next year, before falling back during 2011. The anticipated decline coincides with the lull in the investment cycle for several major utilities. In particular the new five-year capital expenditure programme agreed with Ofwat, the industry regulator for water companies in England & Wales, will commence next April. Historically, the first year of these programmes have seen sharp falls in project starts as the companies finalise their new investment plans.
However, the timing of planned major projects will remain an important influence upon the overall value of project starts in the sector. Several large projects (that is, projects greater than £100 million) in pre-construction planning are also expected to boost the flow of utilities-related project starts. Major expansions at many of the UK’s major ports will generate high value construction work over the next 12 months. For instance, a £400 million project at London Gateway and £200 million project at Felixstowe started on site late last year. In addition, major port developments are also planned for Middlesbrough and Belfast and these could see construction work starting on site within the next 18 months.
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Project News
Tenders invited for 15 homes
Tenders are currently being invited for the construction of 15 houses and flats at Randall Court, Lyndwood Drive in Windsor. The £1.4 million scheme for Windsor & District Housing Association has been designed by architect Churchill Hui. Tenders are due to be returned January 19th, with works due to start on site May 2010.
Project ID:
09067191
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Urban Initiatives awarded contract
Urban Initiatives has been appointed as the design and planning consultant for the regeneration of a site at Edgware Road and Church Street in London. The scheme for Westminster City Council will create a high quality mixed use neighbourhood.
Project ID:
09085808
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Tenders invited for hospice
Tenders are currently being invited for the construction of hospice at Porthpean Road, Porthpean in St. Austell. The £5 million scheme for Childrens Hospice South West has been designed by architect David Wilson Partnership and quantity surveyor Gates Partnership. Tenders are due to be returned January 29th, with works due to start on site February 2010.
Project ID:
09019661
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Tenders invited for sheltered flats
Tenders are currently being invited for the construction of 39 sheltered flats at Rogers House, Elmore Road in Lee On The Solent. The £3.9 million scheme for Hermitage Housing Association has been designed by Miller Hughes Associates. Tenders are due to be returned January 29th, with works due to start on site mid 2010.
Project ID:
09326003
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Framework contractors appointed for public realm
Liverpool City Council has appointed three framework contractors to carry out public realm works and highway works around Liverpool city centre. The three contractors are D Morgan, North Midland Construction and Morrison Construction. The value of the contract is £20 million.
Project ID:
09138036
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Company appointed for asbestos works
Moray Council have appointed company Environmental Contamination Services to carry out asbestos management consultancy services from 2009-2012. The value if the contract is £300k.
Project ID:
09273802
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Company News
Kier/Murphy/Interserve scoop £114m Preston storm water contract
KMI Water - a joint venture between Kier, J Murphy and Interserve Project Services - has been appointed preferred bidder by United Utilities for a £114 million storm water improvements contract in Preston. The scheme involves the construction of a 3.5km long, 2.85m internal diameter tunnel 30m below ground to the west of Preston complete with eight tunnel shafts. The tunnel will hold up to 40m litres of storm water to prevent overflows discharging to the River Ribble.
In addition, five sewer overflow shafts of varying depths and diameters will be constructed in the area to spill flows into the new Interceptor / Storage tunnel system via connecting micro-tunnels. A new terminal pumping station 30m diameter and 34m deep will be constructed at Penwortham to lift flows from the tunnel and transport them to the waste water treatment works at Clifton Marsh via twin rising mains. This will require a further tunnel crossing of the River Ribble near the Clifton Marsh Treatment Works. The project is expected to be complete late spring 2012.
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Wilson Bowden shelves Macclesfield town centre plans
Wilson Bowden’s £200 million plan to transform Macclesfield town centre has been hit by the economic downturn. Plans to construct a 50 retail units, including an 80,000 sq ft Debenhams department store, 1,200 car parking spaces, 55 homes and a multi-screen cinema were submitted by the developer in November 2008. However, a document released before a cabinet meeting of Cheshire East Council revealed that the downturn had a “major impact on the type of scheme that Wilson Bowden are now proposing.”
The setback was described as “disappointing” by the council, but that the new plans, delayed until late this year, will allow the developer to produce a scheme that “meets our priorities as a new authority”, after the split of the old Cheshire County Council into Cheshire East and Cheshire West in April last year. Macclesfield’s heritage as the hub of the silk trade and the regeneration of the southern area of the town are expected to be at the heart of the fresh plans. A council spokesman said: “It’s not that the old scheme will be scrapped but it will be subject to change. We don’t know how much the old plans will be part of the new ones and the changes will be subject to the economic environment.”
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Gifford expands its Board of Directors
Engineering and environmental consultant Gifford has appointed two of its senior directors to the company's main board. The appointments reflect a stronger direction from the company's operational management towards the market sectors served by Gifford. Peter Curran has more than 25 years' experience with Gifford and has built an international reputation in the design and delivery of infrastructure projects, in particular major bridges and landmark structures. "We have been developing our internal structure so that it more closely reflects the markets in which we operate." Gordon Clark, Gifford
One of these is the iconic Gateshead Millennium "blinking eye" Bridge which is known throughout the world. Peter is a leading member of Gifford's Technical Executive, well known for his papers on bridge design and cable-stayed crossings and has been an active supporter of learned societies throughout his career. Steve Canadine is responsible for Gifford's property sector activities with experience in masterplanning and the re-use and redevelopment of historic or brownfield sites. He is an Academician of the Academy of Urbanism, a member of the British Urban Regeneration Association and a mentor of MBA students at the London Business School.
Gifford is an independent limited liability partnership with 51 working partners, all of whom are active across the company's consulting disciplines. The company is directed by its main board which now comprises eight directors under the chairmanship of Gordon Clark. Gordon Clark said: "We have been developing our internal structure so that it more closely reflects the markets in which we operate. These two new appointments to the main board strengthen our operational management team bringing us closer to our clients and markets."
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Mott MacDonald Bentley wins £60m Yorkshire reservoirs framework
Mott MacDonald Bentley has won a £60 million framework contract with Yorkshire Water covering reservoir related works during its AMP5 investment period. The contractor will carry out works on raw water impounding reservoirs, raw water storage and treated water storage reservoirs, as well as associated aqueducts and connections into Yorkshire Water’s water network. Under the agreement the joint venture between Mott MacDonald and contractor JN Bentley will carry out works until 2015.
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Neptune to rescue stalled Liverpool site
Neptune Developments has announced that it is working to develop the mothballed Baltic Triangle site in Liverpool. Work on the Baltic Triangle has been stalled since London-based Windsor Developments went into administration. Now Neptune will work in partnership with Windsor’s administrators, BDO Stoy Hayward, to develop the site. The Baltic Triangle is opposite King’s Waterfront and close to the Liverpool One retail area. While the original Windsor Development scheme was largely residential, it is understood that any new proposals are likely to be mixed-use. Neptune Developments managing director Steve Parry said: “I am delighted that we will be working with the administrator to develop proposals for this strategically important site. “It’s crucially important that this site does not continue to blight confidence or further investment in this area and that is why we will be working hard to bring forward an appropriate and deliverable development mix as soon as is reasonably possible.”
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Galliford Try confirmed for Cambridgeshire BSF
Galliford Try has been confirmed construction partner for the Equitix consortium, which has been appointed as the preferred bidder on the Cambridgeshire Building Schools for the Future programme. As tipped in Construction News last month Galliford Try will carry out the £26 million redevelopment of Neale-Wade Community College in March, Cambridgeshire. The second phase of the programme, which includes the £19 million Cromwell Community College in Chatteris, Cambridgeshire, is set to follow in 2011. The contractor will undertake 40 per cent of Equitix’s construction work in the first phase of the BSF programme with the potential to undertake additional construction work in subsequent phases which could reach £600 million over the next 15 years. Galliford Try chief executive Greg Fitzgerald said: “We are delighted the Equitix consortium has been selected for this significant programme and look forward to working as a construction partner to provide quality secondary education facilities across Cambridgeshire. Our strong presence across all education markets has been key to securing this award.”
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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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