Sussex Business Times is delighted to announce RLF as the sponsors of our new Property section. Here, Sean Clemons provides you with the very latest information from the construction and property market
The construction industry is often viewed as the bellwether for the economy as it is generally the first sector to react to both downturns and upturns. After a disappointingly sluggish 2017 it appears we are on a similar course for 2018 with the Construction Products Association (CPA) predicting 0% growth over the year; which feels like a similar situation for the wider economy.
As with the wider economy the spectre of uncertainty hangs over the industry, due mainly to the ongoing saga of Brexit and what an eventual (if any) deal may look like. Private sector investment is unlikely to pick up until there are some details on the deal and with us leaving the EU in March 2019 this needs to be soon, otherwise, we run the risk of investors defaulting to a ‘no deal’ position. The best outcome for the industry would be to see rapid progress on the deal over the next few months.
The impact of this uncertainty is most noticeable within the commercial sector, with the CPA predicting a 15% fall in construction output for office development. Retail is also suffering with a predicted fall of 5%. One ray of sunshine is the residential sector which is forecasting a growth of 2% for 2018. This is being driven by the demand for new homes, supported by the government’s commitment of an additional £15bn in the last Budget. The target is to see 300,000 new homes built in 2018; an increase of over 25% on last year, which is a challenge.
While new build homes will remain buoyant there are question marks over smaller private household refurbishment projects due to a drop in consumer confidence. However, I predict that this is more likely to result in homeowners choosing to remain in their properties and carry out renovation works rather than deal with the expense of moving house.
The biggest growth sector will be in infrastructure projects with the CPA predicting a 6% rise over 2018, most notably with works starting on HS2. Though it is unlikely that Sussex will see much of this construction output.
SUPPLY CHAIN CHALLENGES
According to the RICS, construction tender prices are unlikely to change much over 2018, however, this is a backdrop of rising labour and material prices. This is because of pressure on contractors to secure work in competition and the outcome will be contractors operating on tighter profit margins. It is this predicament of tight margins that was a major contributor in the recent Carilllion fiasco and there is a risk that other contractors could suffer the same demise.
The impact of Brexit on the exchange rate means that the cost of materials will continue to rise, but Brexit is also having an impact on the supply of labour. At the last recession there was an exodus of skilled labour from the industry and since then the sector has been heavily reliant on foreign labour. This labour is now starting to leave the UK and the industry is struggling to attract and train young people quickly enough to replace them.
The industry needs to continue working hard at making construction an attractive career proposition for young people. There is a skill shortage within the industry and large scale demand for people, however, there is still a tendency for construction to be seen as secondary to other industries.
Within Sussex the construction industry is likely to maintain it’s existing levels, particularly due to the demand for new housing. We will also see some new opportunities and innovations begin to gain traction in 2018…
Build To Rent: This has been a growth area in the last few years, particularly in London and other major cities and I predict that 2018 will see Build to Rent schemes appearing in Sussex, particularly Brighton. Build to Rent also referred to as the Private Rental Sector (PRS) is where new housing developments are built solely for the purpose of renting. They are built by targeting the 25-35 year old demographic, with a focus on life-style living and community with facilities such as gyms, communal lounges and work spaces. These types of schemes are often developed by long term investors such as pension funds and are offering good quality rental solutions for tenants. A benefit of PRS is that affordable rental units can be more effectively incorporated into the overall scheme, which will help with the current housing affordability crisis being experienced in the South East.
Local Authority Investment: 2018 could see significant investment by local authorities in development that benefits the local economy and population. Local authorities have been able to secure low cost loans from the Public Works Loan Board since 2015, though a tightening up of the rules for investing could see a requirement that monies are invested locally. This will mean more council led housing development, as well Councils becoming speculative commercial and retail developers. If they get it right we will see more local economic growth as well as the generation of additional income streams to offset the austerity squeeze.
Grenfell Legacy: We can expect to see a massive overhaul in how fire safety is approached, but also how building regulations and control are managed. It is critical that a new framework is established that removes the issue of no one having ownership over meeting building compliance. The process of how building work is procured is also likely to be brought into focus as the popular ‘design and build’ approach where the risk of design is moved from designers to contractors is challenged. There have been too many instances where what was originally designed is not what is built, particularly where materials are substituted. The industry has been asking itself some probing questions and it’s time to start answering how we can perform better.
Technology: 2018 is likely to see the continued adoption of technology to improve the industry’s productivity. Expect to see more offsite modular construction. This isn’t 1960s prefab territory, but intelligent, adaptable systems which are able to create bespoke solutions to overcome site constrictions while being of a high aesthetic quality. The use of 3D modelling and virtual reality will also, ensure better quality buildings are designed with more mistakes resolved before construction starts. I have already had the fun of donning a VR headset and ‘walking’ around a fully modelled building getting a full grasp of what it will actually be like. This will soon become the norm and mean that clients will understand what they are actually getting.