2014: Catch it if you can

Like a tired football pundit, I find I can’t resist the analogy: 2013, what a game of two halves.

Only back in March we were in the grip of a double-dip recession. Some of us were predicting a recovery later in the year while keeping our fingers crossed behind our backs. As we heard the death rattle of the most gruelling recession any of us have known, everybody was keeping tight control, ramping down their businesses in the knowledge that nobody goes bust at the beginning of a recession when you are bathed in good profits from the boom and you can shed costs easily. It’s the end of a recession that’s the killer, when companies try to survive with expensive core staff, on skinny margins and with rising costs.

But then something changed. Work started coming in. My firm has a major practice in corporate interiors, building the workplaces for some of the UK’s leading companies. This makes us a bellwether for the economy. We go down first, as companies turn off the taps, and then come back first as the corporate world prepares for recovery. Fit-out is fast to design and fast to build so there is little stability and you have to be on your toes to keep up with the market swings.

A gentle recovery would allow industry to rebuild to match demand, but this recovery is looking to be so quick, at least in part, that it’s catching the supply chain out

And never more so than now. The whole sector has been surprised by how quickly our market has picked up after the summer. First it was the TMT sector, the tech and communications giants. Maybe no surprise there: the virtual world of the internet, entertainment and communications was not sullied by the financial crisis as much as other industries. But now, surprisingly, the international banks are back in the market after five years of total inaction.

Some banks are recapitalized and are raring to go, others are just regrouping after these murderous years when it was not even worth spending money on consolidating. It’s as if the bosses have finally said “let’s prepare for action next year”. This is significant. Like it or not, the motor of the South-east’s economy has been the banks, so this is a real sign that the post-summer pick-up might not be just a ripple, like in 2010, but the beginning of a lasting surge in 2014.

While this is clearly to be welcomed (nobody wants to go through March again …), there are going to be some issues. Unlike the recession of 2000, when there was 32 million ft2 of empty offices in London alone from over-speculation, developers put the brakes on so hard in 2007 that there is less than 4 million ft2 of London office space available now. Of course, it will be snapped up in a trice. So, schemes are being dusted down all over town and the recovery in corporate fit-out is spilling over into demand for new build. But this won’t happen quickly enough to match demand - after all, planning permission alone takes at least two years for a sizable scheme. Refurbishment is going to be a very attractive option because it’s much quicker. Those big eighties and nineties offices have great floor plates, decent floor-to-floor heights and lots of embedded carbon to preseve. Dust off your refurb skills - it’s the new new-build!

Capacity will be the big issue of 2014. Add to the sudden pickup in demand for office space the foreign money-fuelled housing boom in the South-east and we have some real capacity issues. All of our industry - professionals, contractors, specialist contractors and material suppliers - have shrunk their businesses to match the market’s diminutive demand. A gentle recovery would allow industry to rebuild to match demand, but this recovery is looking to be so quick, at least in part, that it’s catching the supply chain out. Already pre-orders are going in for 2014 for bricks from housebuilders, fan coils from M&E engineers and joinery production slots from architects.

The UK and EU talent will be fully employed very soon and we will need - yet again - to bring in worldwide skills to our office. As part of a multinational firm, my office has some capacity options that others don’t, but for the professions, visas will be a big issue, and the government needs to be very responsive to this. But the lasting damage a recession does is to the human capital in businesses. Half a generation of new entrants can be wiped out as they find work in more robust industries. Casualties of redundancy programmes open micro-businesses or go abroad - they don’t hang around for years to be re-employed. The real challenge of next year will be to rebuild our various professions’ talent pools to serve the demands of the market.

And as night follows day, after capacity issues we will get inflation. Wage inflation and product price inflation. Delivering projects in 2014 to 2013 tendered prices is going to be an issue and there is going to be some very tough talking over contracts already placed.

Jack Pringle is principal, managing director EMEA at Pringle Brandon Perkins + Will