Adrian Malleson
Head of Research, NBS
04/04/2017
Construction Insights Update
Overview
• The UK Economy
• Construction Output
• A changing world
• What this means for Architects
Construction Industry Update
Overview
• The UK Economy
• Construction Output
• A changing world
• What this means for Architects
Construction Industry Update
Construction Industry Update
Bank of England GDP Forecast August 2016
Source: Bank of England
“The largest revision to our GDP forecast since the MPC was formed almost two decadesago. “
Construction Industry Update
0.5
1
0.6
0.1
0.6
0.1
0.4
0.2
0.4
-0.1
1.1
-0.2
0.6
0.5
0.8
0.5
0.8
0.9
0.8 0.8
0.3
0.5
0.3
0.7
0.2
0.6 0.6
0.7
380000
390000
400000
410000
420000
430000
440000
450000
460000
470000
480000
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3
Source: ONS
Construction Industry Update
“Growth has remained resilient since the referendum, with the UK posting the fastest rate inthe G7 last year.
The economy [is] now projected to expand by 2.0% in 2017 and around 1¾% thereafter.
Bank of England GDP Forecast February 2017
Source: Bank of England
Construction Industry Update
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
£ to $
“Sterling’s decline was clearly prompted by the referendum result. It also seems likely that the foreign exchange market has decided the consequences are negative.
The most plausible explanation for the depreciation is that, in the eyes of the market, leaving the EU will make exporting harder and more costly. To help compensate the currency needs to be cheaper. “
Ben Broadbent – Bank of England
Construction Industry Update
Inflation Projection
Inflation growth as a natural response to Stirling’s Depreciation.
It’s likely to weigh on consumer income.
Source: Bank of England
Construction Industry Update
What has led to this significant revision? There are four main reasons:
First: the government autumn statement indicated an easing of austerity measures.
Second: the outlook for the global economy is looking better than it did last year.
Third: the easing of “fiscal conditions” – a weaker pound and low interest rates - are helping the economy.
Fourth: consumer confidence remains strong. Households have not reduced spending. It was originally thought that the uncertainty caused by the referendum would mean consumers spend less. But no. Consumer spending continues to grow, in spite of an expectation of lower income caused by wage settlements not matching inflation.
Construction Industry Update
Source: WTO
Construction Industry Update
Source: OECD
Source: OBR
Construction Industry Update
The biggest determinants of the UK’s medium-term prosperity will be the country’s newrelationship with the EU and the reforms that it catalyses.
Some of the adjustments to this new reality may prove difficult and many will take time. But the UK can handle change. It has one of the most flexible economies in the world. It benefits from a deep reservoir of human capital, world-class infrastructureand the rule of law. Its people are admired the world over for their strength under adversity.
Source Bank of England
Overview
• The UK Economy
• Construction Output
• A changing world
• What this means for Architects
Construction Industry Update
Construction Industry Update
The UK’s construction sector was in a strong position.
Between now and 2030, the UK was set to rise to become the world’s sixth largest construction market, overtaking Canada and Germany to also become Europe’s largest construction market.
Construction Industry Update
“We forecast that the volume of total construction output in the UK will increase by an average of 2.9% pa between 2014 and 2030, with the strongest growth in the infrastructure sector and the slowest for non-housing work.” Oxford Economics
Construction Industry Update
116.1
118.3
100.0
102.0
104.0
106.0
108.0
110.0
112.0
114.0
116.0
118.0
120.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2016 2017
Source: ONS
Construction Industry Update
-13.2%
8.2%
2.3%
-7.5%
2.0%
102,000
104,000
106,000
108,000
110,000
112,000
114,000
116,000
118,000
120,000
122,000
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2009 2010 2011 2012 2013
% change Value (£M)
Source: ONS
Construction Industry Update
Source: ONS
UK Construction Output in 2016 = £151,278 M (current prices, non seasonally adjusted)
Public Housing, 3%
Private Housing, 20%
Infrastructure, 13%
Public,
7%
Private Industrial, 3%
Private Commercial,
20%
Housing R&M, 18%
Infrastructure R&M,
5%
Other
R&M, 11%
UK Construction Output – by sector
Construction Industry Update
Health,
8%
Education, 27%
Offices, 29%
Shops, 11%
Entertainment, 17%
Other, 7%
Other Public Non-Housing and Private Commercial (2016)
Value shown = £42,019 M (circa 28%)
Source: ONS
“The need for additional housing in England is between 232,000 to 300,000 new units per year” – UK Parliament
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
19
69
-70
19
70
-71
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-00
20
00
-01
20
01
-02
20
02
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20
03
-04
20
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20
05
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20
06
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20
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20
10
-11
20
11
-12
20
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-13
20
13
-14
20
14
-15
20
15
-16
UK Housing Completions
Local Authorities Housing Associations PrivateSource: DCLG
Construction Industry Update
Sectors
• Housing : Continued modest growth in the coming years
• Commercial: Contraction, in part as a result of the Brexit decision
• Education: Continued growth spurred by the Priority School Building Programme and HE work
• Infrastructure: Strong performer with significant year on year growth
Construction Industry Update
Some issues for the construction sector:
• Uncertainty & outcome of Brexit negotiations
• Investment
• Material costs
• Labour
Overview
• The UK Economy
• Construction Output
• A changing world
• What this means for Architects
Construction Industry Update
Construction Industry Update
Source: WTO
Global Poverty : 42% in 1981 to 10% in 2013Life Expectancy : 48 in 1950 to 71 in 2015Literacy: 36% in 1950 to 85% in 2014GDP per Capita 450 US$ in 1960 to $10,000 in
2015 (current prices)
Construction Industry Update
Construction Industry Update
Phase 1
Global Financial Crisis
Phase 2
Sovereign debt crisis
Phase 3
Deleveraging in EM, end of the
commodity super-cycle
Phase 4
Political and social change. Worsening of the growth/inflation
mix
Phase 5
De-Globalisation?
Overview
• The UK Economy
• Construction Output
• A changing world
• What this means for Architects
Construction Industry Update
Construction Industry Update
• Trade
• Working on projects in EU countries
• As an economy, trading with the EU
• Being able to use European products in the UK
• Freedom of movement
• Staff from other countries bring richness, diversity, different perspectives
• People from different countries, have specific strengths
• Spain – strong design approach
• Eastern Europe – strong technical skills
How important is the UK’s current integration into the EU? - Very
Source: NBS Research
Construction Industry Update
• Immediate aftermath
• Staff upset
• EU staff feeling worried and unwelcome
• Workload
• Immediate dip in work
• Some EU projects put on hold, no new work
• Picked up latter part of 2016
• Although some say clients still holding back
• Trade
• Cost of some materials have increased
• Uncertainty
Source: NBS Research
Construction Industry Update
But architects are adept at managing through change
• Boom and bust (1990s and 2008).”
• Brexit
• Policy: New Labour investment into public buildings : Too much money, too quickly; but new procurement approach squeezing design
• Technology: BIM
• Skills shortage
• Changing role of the architect
Source: NBS Research
Construction Industry Update
Lower emissions
50%Reduction in greenhouse gas emissions
in the built environment.
Faster delivery
50%Reduction in the overall time, from inception to
completion, for new build and refurbished assets.
Lower costs
33%Reduction in the initial cost of
construction and the whole life cost of
built assets.
Improvement in exports
50%Reduction in the trade gap between total
Exports and total imports for construction
products and materials.
Construction Industry Update
22
302
24
370
24
363
35
344
100
387
105
413
25
435
0
50
100
150
200
250
300
350
400
450
500
Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports
2009 2010 2011 2012 2013 2014 2015
Trade in Services - Architectural (£m)
Source: ONS
Construction Industry Update
Europe, 16%
America, 18%
Asia, 59%
Australia, 1%
Africa,
6%
UK Architecture Exports 2014
Source: Department of Culture, Media and Sport
Construction Industry Update
Thank you
Adrian Malleson
linkedin.com/in/adrianmalleson