好色先生TV

Predicting the future has become an increasingly fraught and risky enterprise 鈥� as any number of widely-derided opinion pollsters can testify. From the Tories鈥� 2015 majority, to the Brexit vote and the election of Donald Trump, any number of people who confidently told you what was going to happen in the last couple of years have ended up on the receiving end of a hell of a lesson in modesty.

好色先生TV is not immune. Last year we kicked off by forecasting the London mayoral election to be the stand-out political event of 2016 鈥� important, sure 鈥� but it feels like small beer next to the game-changing referendum decision and its fall out. Given the hefty dose of humility consumed by pundits in 2016, it鈥檚 little surprise that the major point of consensus for this year ahead is for continued and deepening uncertainty, on both the political and economic level. Hence the Construction Products Association (CPA) refusing to make predictions beyond 2018 because of the lack of certainty over the trading conditions after exit from the European Union (EU).

At this point, the stand out UK political event of the year looks likely to be the triggering of Article 50 in the spring, after which the UK鈥檚 future relationship with Europe may start to become clearer.

Nevertheless, by the end of the year it may actually be that the fallout from general elections in France, Germany and the Netherlands, where centrist parties are all facing growing 鈥減opulist鈥� movements, does much more to affect the political climate and economic sentiment 鈥� particularly if there are more 2016-style upsets.

The CPA鈥檚 economics director Noble Francis, says: 鈥淧olicy-wise it is difficult to ascertain what this disaffection of a significant proportion of the population means in practice but it will clearly increase uncertainty at a time when uncertainty, nationally and globally, is already high.鈥�

Jack Pringle, London managing director at design firm Perkins + Will, says: 鈥�2017 could be politically the most turbulent year for a very long time 鈥� which could wash into the economy. It will potentially be very volatile on the economic front.鈥�

With Theresa May鈥檚 still very new government slowly defining (and seemingly inventing) its agenda as it goes along, while economists argue whether a Brexit-related economic slowdown has been avoided or merely postponed, there is much to be unsure of in 2017. Below 好色先生TV does what it can to peek through the mist鈥�

Economy

The Office for Budget Responsibility has already revised down the overall UK growth forecast for 2017 year from 2.2% to 1.4%, while revising up inflation expectations in the wake of the 20% plummet in the value of sterling. For construction, most forecasters expect this to translate into non-existent or very weak growth in output, with the CPA predicting output overall to rise by just 0.3%.

However, things will look very different according to which sector you work in: the CPA expects infrastructure to show strong growth of more than 6%; housebuilding is expected to be flat, ending a run of four years of strong growth; commercial construction activity, particularly offices and possibly also retail, is expected to be weaker 鈥� office construction output is forecast to fall 3% 鈥� with the finishing off of existing schemes hiding a much weaker pipeline of new work coming through.

Richard Young, director at project manager Buro Four, says: 鈥淭he big commercial schemes of above 200,000ft2; there aren鈥檛 going to be many wanting to push the button on those.鈥�

Analysts are divided, however, on the impact this weakening commercial market will have on construction prices, particularly given relative strength elsewhere. Simon Rawlinson, head of insight at consultant Arcadis, says tender prices in the London commercial market will drop 4-5% this year.

鈥淲e can be pretty certain about that,鈥� he says. 鈥淭here鈥檚 been a slightly artificial level of confidence since the vote. But if there鈥檚 enough of a hiatus in new projects people will need to secure workload.鈥�

However, Iain Parker, partner at consultant Alinea, says contractors and specialists have stronger current order books than many realise, and lingering financial worries from the recession mean most will avoid taking on low priced work 鈥� at least until the second half of the year.

鈥淲e don鈥檛 anticipate tender price cuts immediately. The more aggressive pricing hasn鈥檛 come through yet, though we expect some to sharpen their pencils in the second half of the year,鈥� he says.

In the meantime, rising costs may be more of a concern to contractors than falling tender prices, with largely imported products such as cladding and M&E plant hit by the drop in sterling. This has already led to an increase in the cost of imported products, says the CPA鈥檚 Francis. 鈥淩ather than a lack of demand,鈥� he says, 鈥渢he key issue for construction in the next couple of years could well be cost inflation. In time the cost of UK manufactured products is also likely to increase as a consequence of international supply chains and energy price rises.鈥�

Politics

While Brexit is set to dominate domestic politics overall, for the construction community the most eagerly awaited political event currently is the publication of the housing white paper, expected later this month. The white paper will tackle a vast array of issues related to housing supply, encompassing the future of social housing, Starter Homes, the build to rent sector, and planning reform. Specific measures are expected to attempt to prevent housebuilders from land banking and to reform the operation of the Community Infrastructure Levy. There is even some talk of the issue of reducing the VAT charged for housing renovation being back on the agenda 鈥� dismissed for years by the Treasury, despite concerted campaigning, as being too difficult to do while within the EU.

Ian Fletcher, policy director for real estate at the British Property Federation, said he hoped the white paper would announce plans to embed build to rent within the UK planning system at a national level in a similar way as recently proposed by London mayor Sadiq Khan in the capital.

鈥淎 huge amount in policy terms lies on what happens this month,鈥� says Fletcher. 鈥淲e鈥檙e hoping for strong support for build to rent and we鈥檝e also had indications they鈥檙e considering more resource for local authority planning departments.鈥�

Housebuilders will want to know if government funding for housebuilding may in future be directing back toward social housing. Later in the year they will also be looking to see how hard Theresa May鈥檚 government clamps down on local authorities which have not produced local plans, with councils given a deadline of April to get their houses in order.

Regarding Brexit, the biggest concerns will be to what extent negotiations over leaving the EU will dampen economic growth, and the more specific issue of what future access UK firms will have to overseas workers to design and deliver UK construction projects.

Brian Berry, chief executive of the Federation of Master Builders (FMB), says: 鈥淲e want clarity on how immigration will work post-Brexit. We just don鈥檛 want anything to make exiting even more tricky.鈥�

Partially related to this, the other big political issue for construction in 2017 will be training and apprentices. The government鈥檚 large employer levy will start operating in April, forcing 900 firms to pay both that and the CITB levy, and there are concerns as to how it will operate. Former chief construction advisor Paul Morrell鈥檚 review of industry training boards, which covers the CITB, will report at some point, though a time frame has not been given. This will determine the future operation of the industry鈥檚 much-criticised levy to pay for apprentices. The FMB鈥檚 Berry says: 鈥淭he departure of the CITB鈥檚 chief executive [Adrian Belton] at the end of last year could make it vulnerable under the review, so we鈥檙e hoping for a quick transition to new leadership.鈥�

On the infrastructure side, news is expected following the Autumn Statement pledge to announce a pipeline of PF2 private finance projects 鈥渆arly鈥� in the year. The government鈥檚 infrastructure unit 鈥� the Infrastructure and Projects Authority 鈥� is also due to report on improving infrastructure productivity by the summer, and the National Infrastructure Commission will report on the use of new technology.

Projects

Strange to say in a time of supposed spending austerity, but many expect the impetus for major new projects this year to come from the public sector, with Theresa May鈥檚 government having given the go ahead to the three Hs 鈥� Heathrow, Hinkley and HS2 鈥� in its first few months.

Contractors can expect work on Hinkley to ramp up quickly, while many of the headlines will be made by HS2, set to gain Royal Assent shortly. HS2 construction work is still slated to start this year, with 拢9bn of main civils contracts to be let in the next six months. Meanwhile design work on Heathrow will speed up in preparation for the submission of a planning application in 2019.

At the same time, other public projects are being worked up for approval, with the business case for Crossrail 2 to be submitted to the Treasury later this year, and the 拢7bn Palace of Westminster refurbishment still on the starting blocks. The 拢369m refurbishment of Buckingham Palace, on which Sir Robert McAlpine has a role, is supposed to start in April.

Arcadis鈥� Rawlinson says: 鈥淪ome areas of the market feel quite strong. The government is being quite supportive of infrastructure and the likes of Thames Tideway and Crossrail 2 have momentum.鈥�

However, the industry will be sharply alert to any delays in moving projects from the drawing board to the building site. 鈥淭o ensure growth for the construction industry overall in the next few years, it is essential that the previously announced projects feed through into activity on the ground rather than focusing on new announcements,鈥� says the CPA鈥檚 Francis.

For many of the biggest building contractors, the spotlight will remain on private work, where the market is less certain. Many expect high end residential schemes that have not already been paused to come under threat, while funders are likely to think very hard about giving the go ahead to speculative office projects. The decision last year to push ahead with the 1.3 million ft2 22 Bishopsgate means construction should start there this year, but it could also make it harder for rival schemes to find tenants to anchor big new buildings. Hence there is much scepticism that schemes such as 1 Undershaft and 40 Leadenhall 鈥� otherwise known as Gotham City 鈥� will get moving. Buro Four鈥檚 Young says: 鈥淚t鈥檚 hard to see why an overseas investor would put 1 million ft2 in the City right now. I鈥檇 be surprised if there was a lot of progress [on 1 Undershaft].鈥�

Optimists, however, say investors and developers are finding other places to put their money. The BPF鈥檚 Fletcher says: 鈥淭he biggest ongoing issue will be the growing appetite to diversify in to other types of assets. If last year was the year of build to rent, the next two could be about providing for the elderly and their housing needs.鈥�

Following on from last year鈥檚 Farmer report, the growth in use of off-site and prefabricated construction methods to build projects out is expected to continue.

Companies

For many in the construction sector, 2017 looks likely to be a harder year to navigate than the last. Kevin Cammack, analyst at Cenkos, says: 鈥淚t鈥檚 going to be a more difficult year, but one in which it鈥檒l be quite hard to predict where the weakness will come from.鈥�

The surest forecast is of the appointment of a number of new chief executives of major firms after a rash of departures in the second half of last year 鈥� departures which to one degree or another represent the difficulties experienced by those businesses. As of today, contractors Sir Robert McAlpine, Interserve, Lakehouse and Laing O鈥橰ourke are all without long term chief executives, though it is not known if Laing O鈥橰ourke chair and chief executive Ray O鈥橰ourke (pictured far right) is looking to appoint anyone at the moment. Either way, O鈥橰ourke is likely to be among those facing the toughest challenges in 2017, with the proposed sale of the Australia business, announced exactly a year ago, still not completed, and with the previously announced big losses to stem from its design-for-manufacture projects and a Canadian Hospital PFI deal.

Meanwhile others, such as Mitie and, to a lesser extent, Carillion, are facing difficulties which will have to be addressed from their diversification into the increasingly problematic outsourcing market.

It will also be a big year for Balfour Beatty, and particularly for chief executive Leo Quinn, (pictured left) who began his tenure in 2015 promising a two-year turnaround. While he has already hit the specific metrics he set himself for bringing cash in and cutting cost, he will need to do more to impress investors at full year results in March.

Cenkos鈥� Cammack says: 鈥淨uinn will have to show significant progress on previous years.鈥� Stephen Rawlinson, analyst at Applied Value, says his track record shows he may consider taking more drastic action than previously. 鈥淥ne tip is that Balfour considers demerging its infrastructure arm, which John Laing previously offered 拢1bn for. Quinn鈥檚 performance plan comes up in 2018 so you know he鈥檚 going to do something.鈥�

Elsewhere, analysts predict, there is little chance of mergers, acquisitions or new stock exchange listings. While it is possible that a private housebuilder, such as Cala, or retirement home developer like Churchill may attempt to float on the stock exchange, Cammack says it would mean accepting a lower valuation than in more auspicious times. Tony Williams, analyst at 好色先生TV Value, says: 鈥淥utside of [product manufacturer] SIG, which I think is an acquisition waiting to happen, there is zero prospect of corporate activity this year. The climate鈥檚 totally wrong.鈥�

We asked six big names in the industry to make their predictions for the year to come鈥�

Mark Farmer, consultant and author of industry report Modernise or Die

Julie Hirigoyen, chief executive, UKGBC

John Tutte, chief executive at Redrow

Philip Watson, design director, Atkins

Ann Bentley, Global Chairman, Rider Levett Bucknall

Al Watson, partner, Taylor Wessing