At the DCP Fresh Start Breakfast, held in Norwich on 11 January, Senior Partner, Robert Dale, took a look at the outlook for the industry in 2019.
January; the month of resolutions, optimism, fresh starts and the ideal time to consider what 2019 might bring.
Given where we are politically there is probably only one thing that is certain for 2019 and that is uncertainty.
Uncertainty is almost undeniably not great for business growth and investment but, to be fair, I can’t remember a period in recent years when we really have had certainty.
And whilst uncertainty may, to a certain extent, be damaging for business, I believe that the constructive impact of taking the opportunities on offer can outweigh uncertainty and be a far more positive influence.
What’s more a period of uncertainty doesn’t mean we are facing a period without opportunity. Particularly in the local market.
First, the economy as a whole.
All the economic and market predictions for the year ahead, carry a massive degree of uncertainty. But what do the expert economist predict for 2019? The following figures are the average of independent forecasts, collected by the Treasury.
Consumer Price Inflation is anticipated to rise by 2%, coming down to the Government’s target
UK GDP is predicted to rise by 1.5%
Fixed investment which includes new construction is forecast at 1.7%
We are told to expect a quarter of a per cent rise in interest rates to 1% before the end of 2019.
Predictions on house price inflation seem to vary significantly with an average of 2%, but there is hope locally that the Eastern Region will again outperform, whilst London remains stagnant
As far as the FTSE100 and Exchange rates are concerned the only consensus seems to be… volatility.
So what of the Construction Industry?
The Office of National Statistics suggests that whilst there is unlikely to be any growth in public housing , last year’s 6% growth of private housing is likely to reduce to 2% this year.
Reports over the new year suggested that we are likely to build fewer houses in this decade than any decade since the Second World War. That’s pretty scary given the current housing shortage.
The Government’s austerity measures have hit public non-housing development hard but 4-6% per cent growth is now anticipated – with increased spending in particular on education and health. Similar growth is also anticipated in infrastructure.
Uncertainty is being blamed for output continuing to fall in the private commercial sector, but conversely private industrial growth is expected to increase by 4%
What’s the future for building costs?
The Building Cost Information Service are really hedging their bets.
They have published their figures based on three scenarios; an upside, a downside and a “central scenario”
In an upside scenario, where we get early certainty of favourable trade deals with Europe & the rest of the world. The tender price index is likely to rise by 4.8% over the coming year.
In a downside scenario, which is basically recession, tender prices could fall by 3.5%, which for someone intending to build this year or the year after, before prices pick up again, may well be good.
The central scenario, however, is still predicting tender prices rising above inflation at 3.2%
Don’t you just love Statistics?
Given my initial premise, that the only thing certain was uncertainty, I think the upside scenario is unlikely. Whatever happens, I’m too optimistic to think that we will go into recession. So, I think that we will be suggesting a 3% rise in tender prices over the year – but don’t quote me on that!
I do however, think that the scenarios that affect these statistics also bring some exciting opportunities.
In the housing sector, the medium to long-term measures introduced by the government in the 2017 Autumn budget should start to take effect. And over the coming years, in meeting government housing targets, this sector is going to get busy.
I also think that the cost equation of estate housing is finally going to tip in favour of modular construction, which could allow the exciting advances we see in modern methods of construction really taking hold.
From a personal point of view, I’m hoping that with innovation in construction, we might get to see an acceptance of more varied styles of domestic architecture in appropriate settings too.
A lack of prestige housing on the market and high stamp duty, means we are still seeing a real appetite for owner occupiers to undertake significant redevelopment of existing plots or properties. I can’t see any reason why this won’t continue.
As I mentioned earlier, we are anticipating increased government spending on health and education but we are also seeing expenditure in the ever competitive private schools and further education sectors, with schools and universities constantly improving the facilities on offer.
Furthermore, there remain really enthusiastic communities who work incredibly hard to deliver services from buildings that once might have been provided by the public sector…. be it hospices, nurseries, free schools or other community buildings.
Apparently, it’s all doom and gloom in the retail world? Admittedly, it’s a challenging market but that in itself is providing opportunities. Shops are having to change. We’re told that what consumers want is a retail experience.
Those changes are themselves bringing opportunities. Retail is merging with both hospitality and leisure and the strength of the tourism sector in Norfolk, where we are seeing year-round tourism allows for continued local investment.
The economic pressures referred to earlier mean that many landowners or asset managers are looking at projects that will either reduce long term liabilities or introduce or increase a commercial return. For those sitting in tourist settings they have increased options.
Perversely the permitted developments that allowed many of our city centre offices to become residential means that there is a lack of good quality office space. Could we even see speculative office developments return to our cities?
We are still seeing our industrial clients wanting more manufacturing and warehouse space and we are particularly lucky in East Anglia with the off -shore sector.
Meanwhile existing buildings, what-ever sector they serve, will still need maintaining – so even when we are standing still in our industry we are faced with opportunity.
So, in spite of some pretty sobering national statistics, and inevitable uncertainty, I think that there is plenty to feel optimistic about.
We are lucky, here at Daniel Connal to be working across all these sectors and providing a wide range of services from project management, quantity and building surveying through to health & safety and dispute resolution.
So we’re more than ready to reach out for these opportunities.
Here’s to 2019, inevitable uncertainty and opportunity!
Taken from a speech originally given at DCP’s Fresh Start Business Breakfast, in Norwich on 11 January, 2019.
