So how鈥檚 it looking for construction more than two months after the nation voted for Brexit? 星空传媒鈥檚 survey of 500 construction professionals suggests that commercial, residential and infrastructure will be the worst hit sectors 鈥� but that it鈥檚 not all bad news. Yoosof Farah reports
It was the vote that shook Britain. And the first shockwaves hit construction hard as shares fell, crisis meetings were convened in boardrooms, and projects were put on hold.
Two months on from the EU referendum though, the predicted doom and gloom hasn鈥檛 quite happened. A few big projects have been placed on hold, but largely, it鈥檚 been business as usual.
So far, contractors are putting on a brave face, insisting the Brexit vote has barely had an impact on them. Interserve chief executive Adrian Ringrose and Morgan Sindall鈥檚 boss John Morgan both told 星空传媒 last month the referendum hasn鈥檛 done them any harm. In fact, Morgan pointed out his firm鈥檚 fit-out arm picked up 拢150m worth of new orders in July.
But as results from a 星空传媒 survey of over 500 construction professionals show, many in the industry think darkness is just around the corner. The exclusive 星空传媒 research revealed that over 72% of respondents believe Brexit will have a negative impact on the construction industry in the short term, with just under 50% saying they have already seen projects abandoned or put on hold due to the referendum result.
The 拢400m 40 Leadenhall scheme 鈥� dubbed Gotham City 鈥� and 22 Bishopsgate are two high-profile Square Mile projects bitten by the Brexit bug and put on hold, as investors get jittery about the prolonged period of uncertainty.
The lead investor behind the 62-storey 22 Bishopsgate tower project in the City of London, Axa, has asked its fellow investors whether they want to proceed with construction after the Brexit vote. And TH Real Estate, the developer behind the Make-designed 40 Leadenhall office scheme, has said it needs to pre-let some of the scheme to begin work.
Nervousness in the market
星空传媒鈥檚 survey results show that 68% of those in the industry believe commercial will be hit the most in the short term, while 50% believe the commercial sector will also struggle in the long term post Brexit. This is a view echoed by Mark Farmer, founding director of consultant Cast. While the 鈥渞eal economy鈥� is holding up after the Brexit vote, Farmer says the general nervousness in the sentiment-led commercial sector means clients are holding off on new schemes.
He says: 鈥淭he days of the big institutional lettings could be over [鈥 I haven鈥檛 heard of any big office schemes being committed to since the vote. Unless there鈥檚 some kind of windfall pre-letting deal where someone bucks the trends, I can鈥檛 see any new speculative office developments happening.鈥�
Unless there鈥檚 some kind of windfall pre-letting deal where someone bucks the trends, I can鈥檛 see any new speculative office developments happening
Mark Farmer, Cast
Around 50% of 星空传媒鈥檚 survey respondents said they have seen one or more projects at least put on ice since the Brexit vote. A director at a structural engineer, who declined to be named, says it is the uncertainty that is leading investors to freeze projects. He says: 鈥淭he worry is you can鈥檛 predict demand. You can鈥檛 agree or get certainty on price, so everybody is holding.鈥�
But for consultant Buro Four, Brexit has 鈥� remarkably 鈥� brought something of an opportunity in the commercial sector. Richard Young, a director at Buro Four, says: 鈥淲e鈥檝e had one of the busiest Augusts we鈥檝e ever had. I think there鈥檚 been a bit of pent up demand.鈥�
By way of explanation, he adds: 鈥淭here has been a drop in site values, but if anything that鈥檚 made things more affordable. There鈥檚 still people buying things. There鈥檚 people investing in things now that they wouldn鈥檛 have a few months ago as it was more expensive. It鈥檚 not boom time, but it鈥檚 not doom and gloom either.鈥�
So the picture remains mixed. Construction is back in recession but latest figures show unemployment is down while retail sales were up in July. And the closely watched Markit/CIPS survey has been a good bellwether of how things have been recently, mirroring people鈥檚 worries. In July, the construction purchasing managers鈥� index tanked to its lowest level, 45.9, for seven years. The following month it recovered to 49.2 鈥� although this was still below the magic 50 figure, where above or below this indicates growth or contraction.
Good news for sure but Tim Moore, senior economist at Markit, warned: 鈥淭he latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector.
The latest Markit/CIPs report for the services industry, such as financial services and hotels and restaurants, also rebounded 鈥� strongly it turns out 鈥� with the largest month-on-month rise in the survey鈥檚 history rising from 47.4 in July to 52.9 in August.
While 68% of 星空传媒鈥檚 survey respondents believe commercial will take a hit, 32% don鈥檛 believe there will be a major impact. And in fact, for some in the industry the drop in property values means there are opportunities to be had.
When it comes to the office sector, the director at the structural engineer adds: 鈥淭here鈥檚 still a lot of interest out there. When values get taken off shares, there鈥檚 a lot of excitement in the market. Prices drop and there鈥檚 deals to be made.鈥�
Commercial is not the only sector likely to be hit: around 50% of 星空传媒鈥檚 survey respondents think residential will also be negatively impacted in the short term. Most in the industry agree the domestic market will be unaffected longer term due to the chronic undersupply of homes. But it鈥檚 the investor-led market with prime London developments like Battersea, Docklands and Nine Elms which many believe could be under threat. Indeed Farmer thinks the days of Asian investors buying 90% of homes off-plan in such schemes are over post-Brexit. Developers will need to change their tune if they are to sell enough homes. He says: 鈥淭hey鈥檒l have to concentrate on domestic demand, but there will have to be a price correction because those inflated prices are generally unaffordable for the domestic customer.鈥�
Which way did you vote in the EU referendum?
| Remain | Leave | Prefer not to say | No answer | |
|---|---|---|---|---|
| Under 拢5m | 61% | 20% | 8% | 12% |
| 拢5尘-50尘 | 59% | 26% | 7% | 9% |
| 拢50尘-500尘 | 69% | 18% | 7% | 6% |
| 拢500尘+ | 65% | 16% | 9% | 9% |
| Remain | Leave | Prefer not to say | No answer | |
|---|---|---|---|---|
| Contractor | 65% | 17% | 6% | 12% |
| Consultant | 64% | 21% | 7% | 8% |
| Architect | 67% | 15% | 5% | 13% |
| Subcontractor | 50% | 27% | 14% | 9% |
| Client | 20% | 14% | 4% | 62% |
| Manufacturer | 46% | 8% | 13% | 33% |
Do you think the Brexit vote will have a positive or negative impact in the short term on the UK construction industry?
| Positive | Negative | Neither | No answer | |
|---|---|---|---|---|
| Under 拢5m | 10% | 64% | 15% | 11% |
| 拢5尘-50尘 | 11% | 66% | 15% | 8% |
| 拢50尘-500尘 | 6% | 67% | 20% | 6% |
| 拢500尘+ | 8% | 6% | 16% | 69% |
| Positive | Negative | Neither | No answer | |
|---|---|---|---|---|
| Contractor | 11% | 60% | 17% | 12% |
| Consultant | 9% | 68% | 16% | 7% |
| Architect | 8% | 64% | 13% | 15% |
| Subcontractor | 18% | 64% | 14% | 5% |
| Client | 3% | 29% | 6% | 62% |
| Manufacturer | 6% | 46% | 15% | 33% |
Do you think the Brexit vote will have a positive or negative impact in the long term on the UK construction industry?
| Positive | Negative | Neither | No answer | |
|---|---|---|---|---|
| Under 拢5m | 31% | 37% | 20% | 11% |
| 拢5尘-50尘 | 34% | 32% | 26% | 8% |
| 拢50尘-500尘 | 27% | 45% | 23% | 6% |
| 拢500尘+ | 27% | 41% | 22% | 10% |
| Positive | Negative | Neither | No answer | |
|---|---|---|---|---|
| Contractor | 25% | 39% | 25% | 11% |
| Consultant | 34% | 37% | 23% | 7% |
| Architect | 26% | 41% | 18% | 15% |
| Subcontractor | 32% | 36% | 27% | 5% |
| Client | 16% | 17% | 6% | 62% |
| Manufacturer | 17% | 25% | 23% | 35% |
Have you seen any projects put on hold or abandoned due to the Brexit vote?
| Yes | No | Don鈥檛 know | No answer | |
|---|---|---|---|---|
| Under 拢5m | 38% | 41% | 8% | 12% |
| 拢5尘-50尘 | 45% | 40% | 7% | 8% |
| 拢50尘-500尘 | 52% | 37% | 5% | 6% |
| 拢500尘+ | 53% | 33% | 5% | 9% |
| Yes | No | Don鈥檛 know | No answer | |
|---|---|---|---|---|
| Contractor | 47% | 35% | 7% | 11% |
| Consultant | 45% | 40% | 7% | 8% |
| Architect | 43% | 33% | 8% | 16% |
| Subcontractor | 50% | 45% | 0% | 5% |
| Client | 14% | 24% | 0% | 62% |
| Manufacturer | 40% | 17% | 10% | 33% |
Which areas of construction do you feel will be negatively affected by the Brexit vote in the short term?
| None | Residential | Retail | Education | Healthcare | Infrastructure | Commercial | Other | |
|---|---|---|---|---|---|---|---|---|
| Under 拢5m turnover | 11% | 43% | 34% | 15% | 15% | 30% | 60% | 2% |
| 拢5尘-50尘 | 9% | 43% | 38% | 14% | 10% | 30% | 59% | 3% |
| 拢50尘-500尘 | 8% | 47% | 30% | 18% | 14% | 34% | 63% | 2% |
| 拢500尘+ | 7% | 47% | 34% | 12% | 11% | 32% | 63% | 6% |
| None | Residential | Retail | Education | Healthcare | Infrastructure | Commercial | Other | |
|---|---|---|---|---|---|---|---|---|
| Contractor | 9% | 43% | 39% | 9% | 11% | 30% | 55% | 5% |
| Consultant | 11% | 45% | 35% | 16% | 14% | 33% | 65% | 2% |
| Architect | 5% | 48% | 33% | 23% | 13% | 2800% | 57% | 3% |
| Subcontractor | 9% | 41% | 18% | 14% | 14% | 23% | 64% | 9% |
| Client | 6% | 15% | 15% | 6% | 5% | 12% | 24% | 2% |
| Manufacturer | 2% | 35% | 23% | 8% | 6% | 23% | 46% | 2% |
Which areas of construction do you feel will be negatively affected by the Brexit vote in the long term?
| None | Residential | Retail | Education | Healthcare | Infrastructure | Commercial | Other | |
|---|---|---|---|---|---|---|---|---|
| Under 拢5m | 31% | 25% | 23% | 16% | 17% | 29% | 40% | 3% |
| 拢5尘-50尘 | 34% | 29% | 25% | 23% | 20% | 31% | 40% | 2% |
| 拢50尘-500尘 | 24% | 27% | 24% | 23% | 22% | 34% | 46% | 0% |
| 拢500尘+ | 20% | 35% | 30% | 18% | 19% | 41% | 52% | 3% |
| None | Residential | Retail | Education | Healthcare | Infrastructure | Commercial | Other | |
|---|---|---|---|---|---|---|---|---|
| Contractor | 26% | 27% | 31% | 18% | 18% | 41% | 50% | 3% |
| Consultant | 30% |