Profiting from productivity drive

The government’s enthusiasm to encourage and invest in measures to boost the UK’s lacklustre productivity growth should bode well for the construction industry in 2018.

The Budget underlined the need for the UK to make a priority of upgrading infrastructure, reforming the housing and planning system, helping business investment and improving skills. Government spending through the National Productivity Investment Fund is set to surge in coming years: on accelerated construction from £90 million this year to £230 million in 2018/19; on affordable housing from £495 million this year to £1,215 in 2019/20 and on the housing infrastructure fund from £60 million this year to £2,125 million 2020/21. The £1.7 billion Transport for Cities fund, is also part of the government’s productivity drive.

The need for further improvements in productivity in construction was a key theme at Glenigan’s recent 2018 Construction Outlook Briefing. Speakers, who included Suzannah Nichol MBE, chief executive of Build UK and Don Ward, chief executive of Constructing Excellence, highlighted the progress the industry had made in improving KPIs over the past 15 years. But they stressed the need for further improvement by embracing concepts such as off-site manufacturing and digitally-embedded work. Rising productivity, it was emphasised, tended to go hand-in-hand with rising margins.

Offsite manufacturing is attracting growing interest as the industry struggles with an ageing workforce and skills shortages. Legal & General is currently recruiting over 400 people at its modular homes plant in Leeds, where it is making cross-laminated timber homes which reduce the time involved on site by up to a half. Elsewhere, Laing O’Rourke has invested in modular homes manufacturing plants at its Explore Industrial Park and, with others, has received a £22.1 grant which will help create a facility for 10,000 new homes each year.

The pace at which off-site manufacturing takes-off remains to be seen although the process of traditional building appears to be getting no easier. Unveiling its results before Christmas, housebuilder Countryside Properties said the main constraint on the supply of new homes today was a lack of skilled labour, rather than the availability of land or finance.

The UK’s performance on productivity – which has grown at an average of just 0.1% pa since 2008, compared to 2.1% pa in the decade previously - is partly linked to manufacturing industry’s own mixed investment record. Here, some hopeful signs emerged in the EEF/BDO fourth quarter manufacturing outlook survey which showed firms ended last year with high hopes for 2018. Helped by strong export orders, investment intentions over the next 12 months increased to a three-year high, showing a net balance of +20%. Capital goods manufacturers are planning to invest more, particularly in the electronics sector, which should underpin industrial construction prospects next year.

With UK growth likely to be subdued over coming years, firms are seeking productivity gains through mergers and acquisitions which could also have positive spin-offs for construction. Hammerson’s agreed merger with Intu Properties unveiled before Christmas will create the UK’s largest property group, with stakes in 12 of the 20 largest shopping centres in the UK including Trafford Centre and Lakeside (Intu) and Birmingham’s Bullring and Brent Cross (Hammerson). As the groups combine operations against a tough retailing background, the deal will mean new investment in venues producing higher returns as well as re-development work on the centres - estimated to be worth £2 billion- which are planned for disposal.