SOUTH EAST
With the new government’s commitment to build 1.5 million new homes by 2029, almost doubling the anticipated delivery this year, the construction industry will need to embrace all forms of construction to meet these targets.
This is especially true given that other housing demands, such as retrofit and maintenance programmes, need to be delivered by the same limited supply chain. Labour shortages are affecting pricing levels on projects generally. Long-term thinking and government and industry initiatives are needed to close the skills gap.
MARKET CONDITIONS & PIPELINE
Positive outlook as market hopes reforms will speed up planning
The general outlook for the property and construction industry in the South East remains positive. The market’s optimism has been bolstered by the new Labour government’s acknowledgement that planning policy reform is a fundamental necessity to improve the development cycle, although further clarity is required about exactly how change will be achieved.
There are steady levels of activity in terms of site acquisitions. We are seeing a number of change of use proposals as more buildings that were previously commercial offices are repurposed or demolished to provide life sciences, residential or industrial space.
Project starts slowed because of the general election, evidence that there is still caution in the marketplace. There are several schemes stagnating in the development process across different project types, but it is hoped planning policy changes and improved resources will make it easier for projects to come through the system, releasing pent-up development opportunities.
Profit warnings and insolvencies among main contractors are causing a degree of nervousness across client organisations and the supply chain. With material and labour costs inflation becoming more stable compared to previous periods of volatility, profit margins should become more manageable, reducing risk and improving programme certainty.
RLB Market Activity Cycle
The RLB Market Activity Cycle is a representation of the development activity cycle for the construction industry.
RLB considers 10 sectors to be representative of the construction industry as a whole. Each sector is assessed as to which of three activity level zones – peak, mid or trough – best represents the current status of the sector within the cycle. This assessment is then refined by identifying whether the current status is in a growth phase or a decline phase.
The subjective current performance of sectors is identified by ascribing one of the coloured arrows (shown in the legend of the chart) to each sector. NB: In this analysis, sectors are not individually weighted.
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Market sector activity analysis: South East
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of a region enables the calculation of a regional representation of percentage of sectors in each phase of the cycle at a point in time.
Market sector activity analysis: United Kingdom
▲ Peak Growth ▲ Mid Growth ▲ Trough Growth
▼ Peak Decline ▼ Mid Decline ▼ Trough Decline
Consolidating the results of multiple regions enables the calculation of a national representation of percentage of sectors in each phase of the cycle at a point in time.
TENDER PRICES
Tender price inflation expected to increase moderately
With economic and wider inflationary pressures easing and a new government in place, there is cautious optimism that the industry’s pipeline will remain stable and, in some cases, improve as new policies and initiatives help to stimulate growth and activity in certain sectors.
Against this backdrop, and considering the cost input fundamentals at play, we forecast tender price inflation to maintain a steady upward trajectory over the next 12 months.
Beyond that, expectations are that tender prices will remain on a moderate upward trajectory with reasonable demand across sectors, enabling supply chains to focus on securing work at a healthy profit margin.
Tender price change
▉ RLB South East
▉ BCIS (National) TPI ▉ BCIS (GBCI)
▉ Competitors (High) ▉ Competitors (Low)
INPUT COSTS
- The impact of key movements in commodity prices on tender pricing has generally been in line with the national inflation picture.
- Material costs inflation is becoming more stable compared to previous periods of volatility.
- The well-reported skills and labour shortage remains an issue and is likely to be so for several years to come. From a basic supply and demand perspective, this continues to cause price pressures.
SECTOR FOCUS
Commercial
The drive for life sciences office projects over conventional commercial office buildings continues at pace, albeit with a further boost needed on the demand-side of the equation in the short term at least. The market has been buoyed in recent months by the number of positive lettings taking place, rewarding those developers who have been bold enough to embark on significant speculative new build commercial developments.
Data centres
There are some major data centre projects progressing through the development cycle and in broader geographical locations than have been seen previously.
Education
The drop-off in international students has impacted the incomes of some universities, leading to redundancy programmes and course closures. Other universities, however, continue to invest in significant capital expenditure programmes.
With faculties having mostly secured their student numbers for the new academic year, the estates/property departments want to make the most efficient use of their allocated funding by investing in facilities that will add most value to the student experience.
This involves squeezing construction projects into the summer holiday months, which is when the work can be undertaken while students are away. Competition is not fierce as only those contractors who specialise in this type of work are tendering, resulting in higher costs.
ELTHAM, UK
University of Greenwich
RLB is providing the University of Greenwich with commercial support for a major refurbishment of student accommodation. The project involves the upgrade and reconfiguration of the existing student residential facilities at Boleyn Court on the Avery Hill Campus, Eltham.
The building is composed of three floors with a broadly replicated stacked layout. There are 39 self-contained flats with 166 bedrooms, with the 13 flats on each floor served by seven common stair cores.
The project, which includes a full electrical re-wire to provide data services, will be conducted in two phases:
- Phase 1 – Full strip-out
- Phase 2 – Renovation and fit-out of the interiors of each bedroom to meet current student expectations for residential accommodation, and an upgrade of communal facilities within each flat including kitchen/dining areas, WCs and shower rooms.
