Will the Olympic budget keep soaring? Will Ray O’Rourke buy when Amec sells? Will Ucatt survive against the super union? Will QSs still be interested in property? And will we still be talking about Wembley in December? Consulting a beginner’s guide to astrology, we reveal all this and more in …
Meteors in the Orion belt suggest problems with the CIS tax system and further squabbles for Multiplex
The CIS online tax system comes into force in April, and smaller firms that have not got to grips with how to use it will be hit by severe penalties. With an influx of migrants from the latest EU accession countries, Romania and Bulgaria, there will inevitably be problems with incorrect papers, which could cost firms £5,000 in each case.
Contractors will be glad to see the completion of Wembley national stadium in time for May’s FA Cup final. But the drama will not be entirely over, as Multiplex is set for its second showdown with steel contractor Cleveland Bridge in March. This time they are meeting face to face in court to settle damages. The two are still trying to reach an agreement, but sources close to the situation say that is an unlikely outcome.
After a turbulent 2006, Amec is likely to remain in the spotlight in early 2007. Chief executive Samir Brikho is looking to sell four built environment divisions as soon as possible, including building/civil engineering and PPP. He may struggle with the former, though Australian giant Downer EDI is known to be on the lookout for a British civil engineering business, and Hochtief could be interested in the latter having demonstrated an appetite for PPP activities. Ray O’Rourke’s history of buying big names for little cash – namely Laing for £1 – means that his name is also linked to parts of the business, but expect him to look at the growing nuclear market, perhaps with one eye on a consultant in the sector.
Contractors in general may well look to diversify their operations in the energy and consultancy markets. The new slimline Jarvis could make a useful addition to a contractor needing to bulk up its rail business, such as Skanska or Kier. However, its allure will depend on whether it retains its lucrative track renewals contract with Network Rail.
High politics will play a part in deciding where construction sits within government - the DTI would almost certainly disappear under prime minister Brown. One of the options he is thought to be considering is the creation of a Department for Economic Affairs, combining the functions of the DTI and Treasury. This would give construction the voice it has craved for so long.
Although government spending increases are expected to slow, private sector work is on the rise, as indicated by market analyst Experian. It reports that construction output growth of just 0.9% last year will rise to 2.5%.
Jupiter declining in the house of Leo can only mean the demise of some well-established housebuilders
Famous names in housing will disappear as the pace of consolidation becomes even faster. The all-but- certain sale of Wilson Bowden to one of five potential buyers (Barratt, Redrow, HBOS, Wimpey, Bellway) will be the first development, with players small and large repositioning themselves in the wake of its disposal. Linden Homes is already up for sale and Crest Nicholson is another likely prey while predators include Persimmon, Taylor Woodrow and – if it fails to gobble up Wilson Bowden – Barratt.
Indeed, Barratt and Persimmon will probably use acquisitions to resolve their battle for supremacy. Persimmon entered the FTSE 100 in 2006 and Barratt is likely to try to buy its way back to the number one spot. New chief executive Mark Clare is certainly a more acquisitive soul than his predecessor, David Pretty, who focused on organic growth.
And it’s not just the big two. Keep an eye on Scotland’s Miller Homes and Ireland’s McInerney Homes, both of which have signalled aggressive intentions in the UK.
The acquisition drive is fuelled by single-digit price inflation, meaning organic growth will be slow. The November interest rate rise is yet to have a big impact on the market as consumer confidence is still high, but future rises my be more keenly felt by buyers.
Adventurous moves switched on by the presence of Venus, suggest tougher energy targets and higher costs
From April, all social housing will have to be 25% more energy efficient than stated under the revised Part L of the Building Regulations, which was introduced last year. As any development agreed from April will take several months to come through, the first more energy-efficient homes are likely to start construction in November or December. This will also involve tough water, waste and building materials targets.
Building understands that this is expected to result in dwellings costing 5% - roughly £5,000 - more to build than those constructed to Eco Homes “very good” standard.
This was a result of a recommendation in the Code for Sustainable Homes, which came out last month. A proposal made alongside this was to make all homes,
public or private, carbon neutral by 2016. Although this is currently a voluntary rather than a mandatory ambition, there's every chance that this could one day enter regulations.
As such, housebuilders will have to look at implementing the proposals, starting with a 35-delegate conference next week hosted by housing minister Yvette Cooper. There is a consultation paper out until March that aims to set out a timetable for action. The Construction Products Association, for example, is producing a detailed 10-year timetable with targets set for each month.
Home Information Packs come into force in the summer, which will include energy performance certificates. It is feared that insisting that a seller has a certificate will simply mean that the buyer uses a poor energy rating as a way of getting a few thousand pounds off a house price. As a result, there is likely to be pressure on ministers in the first half of the year to introduce incentives for buyers to improve energy efficiency soon after acquiring the house.
The upgrading of the thermal performance in Part L should lead to less clear glass and more opaque building envelopes, often in concrete, composite metal panels and timber boarding.
The sun in Aries foretells the maturing of bright young practices
A select group of emerging architects are about to enter the big league. Step up eight-year-old DSDHA, which will reveal its final plans for Parliament Square this year. The practice is working with Foster and Partners on this one, which suggests that the grandees of architecture are already taking notice. dRMM is also set to build on its success at the award-winning Wansey Street project, the first housing development at the £1.5bn Elephant & Castle megascheme in south London. Both practices recently made it on to the shortlist to become framework architect for Tate Britain, a role that was won by Caruso St John – another one to watch. All three will be looking to expand their portfolios in the coming year.
Witherford Watson Mann, which was set up five years ago, is another firm worth keeping an eye on. With a recent commission to build an urban park connecting the Tate Modern with Elephant & Castle and the completion of the extension to the Whitechapel Art Gallery in east London this year, the practice’s profile is certain to grow.
Andrew Wright Associates is tipped by contractors and engineers as another up-and-coming practice. Designs for its most recent win, a leisure centre in Scunthorpe, will be showcased this year.
And don’t take your eye off Make Architects. Ken Shuttleworth is expanding the practice so fast it’s hard to keep up. Some of its first projects, such as the revamp of the former Marks & Spencer headquarters at Baker Street, will be completed this year.
The convergence of Mars, Venus, Saturn and Mercury in Libra points to a bit of a shopping spree
Look for major QSs to spread their wings in 2007. Many of the bigger practices’ business portfolios are no longer skewed towards property, with EC Harris a prime example. Property is only 25% of its business, with industry (oil, gas, nuclear) also representing a quarter. This is why it is in negotiations to buy the project services arm of the British Nuclear Group. While that deal is not certain to be completed this year, it is a sign of the times as the traditional QS looks to emulate the multidisciplinary model.
Not that mid-sized QSs of £10-20m turnover should feel safe. Big property agents are entering the market, with names like Jones Lang LaSalle and Cushman and Wakefield (which already has a joint venture arrangement with EC Harris) increasingly found on bidding sheets. The quickest way for them to develop their QSing and project management capabilities is to acquire.
And there will still be big QSs with the appetite to buy within their traditional home, particularly while the market is ripe. Davis Langdon has cash to burn, and White Young Green might wish to continue its spree in the sector, having bought big name project manager Trench Farrow last year.
Also, Roger Knowles should float his “super QS” this year, which is a proposed merger of three or four regional practices.
Another issue that will be prominent next year is skills shortages. QS firms will be forced to look abroad for staff, particularly if they are based in the South-east where Olympics-related work is likely to drain the available labour pool.
The problem is that visa rules make it difficult to employ staff from outside the EU. People are reported to be getting half way through their training before being forced to go home. The RICS is lobbying the Home Office to put QSs on the list of professions with easier access to the UK labour market.
Saturn, the planet of security and fear, is ascendant, warning that Olympians may not yet be over the worst after a turbulent 2006
The Olympic Delivery Authority is due to release its latest budget for the 2012 Games later this month. It is anticipated that this could now exceed £10bn.
However, this is unlikely to be the case. Although most of the construction work will not take place until 2008, this will be the year of procurement for most of the venues, and therefore there will be intense media scrutiny of the firms selected.
That said, by the end of the year contractors should be selected for the velodrome, the Broxbourne kayaking and canoeing centre and perhaps even Zaha Hadid’s £75m aquatics centre. Bovis Lend Lease looks certain to win the Olympic village, and also looks likely to bid for the velodrome – as will Foster and Partners. This month Sir Robert McAlpine should also be confirmed as the builder of the main Olympic stadium.
Most of the Olympic land is also scheduled to be remediated this year, with work starting on the areas around the Olympic stadium, media centre and village due to start in the summer.
The unions will also focus much of their attention on worker conditions on Olympics projects, keeping a particularly watchful eye on safety standards. Expect the union representative on the Olympic Delivery Authority board, T&G assistant general secretary Barry Campfield, to adopt an increasingly public role once projects start on site.
Venus, the planet of love and money, is a hotbed of electrical activity, hinting at success for stocks linked to utilities work
The City’s hot tip for 2007 is to get into blue collar support services firms, such as Alfred McAlpine and Interserve, because of their exposure to utilities work. Many utilities firms are outsourcing their repair and maintenance work in preparation for selling up to finance houses. These potential buyers like the idea of long-term income streams, but don’t actually want to dig any holes.
This trend is being amplified by the regulators, which are encouraging outsourcing as a way of improving efficiency and raising the capacity of the utilities, particularly in electricity.
Mike Foster, an analyst at KBC Peel Hunt, is lukewarm about the prospects for contractors in the PFI market. The City has looked favourably on these firms because they tend to have safe long-term income streams from completed projects. This is reflected in the price-earnings ratio of their stocks – that is, what the company is worth relative to its earnings. PFI contractors have a P/E ratio of about 10-15, which, historically, is a high value. However, Foster warns that this cannot last: “People have got carried away,” he says.
Foster’s tip for firms to avoid are those with exposure to the social housing market, because government spending is likely to be “under pressure”. This is not good news for companies such as Connaught and Inspace. The former has a P/E ratio of more than 20, so it’s hard to see how it can go much higher.
In the broader construction economy, the Comprehensive Spending Review could be one of the first major announcements of a Brown government before the summer recess. However, Milan Khatri, chief economist at the RICS, warns that this is likely to put public spending back in line with economic growth, which it has been outstripping since 1997. Public spending has stood at roughly 10% per year, but the CSR will probably reduce this to 5-6%, though the impact shouldn’t be felt until 20009.
Sightings of shooting stars from the capital suggests London will be the place to find space
Anyone looking for office space in the capital will be relieved to know that commercial developers are developing their socks off.
The centre of this boom is the City, where several projects are due for completion by the middle of 2007. Two of the largest schemes are the £200m New Street Square office in Fetter Lane, designed by Bennetts Associates, and, slightly to the east, Foster and Partners’ £191m Willis Building.
There are plenty more in the pipeline, although these other projects will not be finished until 2008 and beyond. The most prominent of them, literally and metaphorically, is Renzo Piano’s 72-storey Shard of Glass, which finally starts on site at London Bridge after years of procrastination.
Other large projects for a range of occupiers – rail passengers, sports fans and so on – will open their doors this year. Eurostar trains will start operating from the stunning St Pancras International station, in November, and sports fans will (probably) be able to watch the FA cup final at Wembley in May.
Some interesting smaller projects will also be completed, such as Allies and Morrison’s £15m Time and Space project in Greenwich, which has a unique bronze-clad planetarium. This should be open for business in the spring; and in the autumn London will have a Maggie’s Centre hospice in Hammersmith, designed by Richard Rogers.
The most controversial project of the year could be the enormous mosque planned for east London’s West Ham. If this gets planning permission it will become Britain’s biggest religious building with capacity for 40,000 worshippers. Locals have accused the project’s client, a religious group called Tablighi Jamaat, of being a radical organisation and are concerned it could become a hotbed of extremism.
The aggression of Mars is tempered by the reflective qualities of the sun, implying that bold PFI changes will be introduced sensibly
The Treasury’s proposals for major changes to PFI contracts should come into force this year. In January, the department is likely to recommend that soft services, such as catering and cleaning, should no longer be automatically included in PFI schemes. Instead, a value-for-money case will have to be made for their inclusion.
The government seems determined to press ahead with break clauses, which will make it easier for departments to terminate long-term deals with failing consortiums. A market for project delivery organisations, which will effectively take over part of the client role, should also develop with Serco and Laing likely participants.
The Treasury’s private finance unit will be looking to pilot some of these ideas on simple projects, such as roads and prisons, in the coming months. This team is currently in a state of flux, as a successor could not be found for the unit’s boss, Richard Abadie, at the end of 2006. Expect him to stay until spring, when a candidate may be found to fill his shoes.
Many of the large hospitals in the pipeline are still under review, so expect several high profile schemes to be pulled this year. Also, there are no super hospitals scheduled for completion this year, though one of the biggest will be the £135m West Wing Children’s scheme at John Radcliffe Hospital in Oxford.
With a new chief executive in the form of Tim Byles, Partnerships for Schools will be hoping to get more of its Building Schools for the Future schemes on to the market. However, the lack of a genuine PFI element is putting off some potential bidders from entering some of the races.
The emergence of a bright new star indicates that the new super-union will attract Ucatt’s members
Workers’ representation is likely to change radically next year following T&G members voting in favour of merger with engineering union Amicus. A final ballot of about 2 million members of both unions should take place in February, with the merger complete by May.
The influence of the internet age is apparent in the names being suggested for the new body. The favourites are OneUnion or union@work, with AmicusT&G also being considered. Ucatt is adamant that it will maintain its independence, but expect the industry’s only dedicated construction union to come under increased pressure to join. The sheer size of “OneUnion” will make it a formidable competitor for subscriptions, so expect talks to start by the end of the year.
As for the unions’ agenda for the new year, Ucatt and the T&G will continue their principal campaign: to persuade the government to bring in corporate manslaughter legislation to make individual directors criminally accountable for accidents. Alan Ritchie, Ucatt's general secretary, says the unions are “still intent” on securing the measure, despite its omission from the corporate manslaughter bill that is presently progressing through parliament.
The planets are shrouded in darkness, meaning that planning tax looms …
The infamous planning gain supplement is not set to come into effect until 2009, if it comes in at all, but the very fact that the government appears determined to push ahead with a tax that has previously proved unworkable and is wildly unpopular with the development industry will loom over 2007.
However, there’s more to planning policy than that. Look out for an increased emphasis on helping housing providers to build, possibly on newly released
But they may not be able to build just what they want. New guidance contained in planning policy statement three (PPS3) will come into force in April, and will attempt to redress the imbalance created by its predecessor, which promoted high-density development, and spawned a generation of family-unfriendly apartment blocks. PPS3 demands a more balanced mix of housing.
The planning white paper, which is due in spring, is expected to take up one of the central recommendations of the Barker report on planning and the Eddington report on transport: to set up an independent commission to approve or reject major infrastructure projects.
The merger of the Housing Corporation and English Partnerships, which is expected to be announced next month, should start to make its way on to the statute books by the Queen’s Speech in November. The merged body should have more planning powers and be able to dish out social housing cash more efficiently.
The presence of Mercury in the house of Virgo means office developers’ recovery will continue
The pace of office development picked up in 2006, and will accelerate in 2007 before overtaking retail investment and reaching its zenith in 2008. Sustainability seemed like a nice idea a year ago – now it’s a top priority for developers. BREEAM ratings becoming linked to rising energy prices will make tenants aware of how a building’s design affects its running costs. Developers will be striving for an excellent rating to attract the highest rents. Leading developers in this area are Quintain, Hammerson and, on shopping centres, Westfield.
Retail will have another relatively strong year, although there won’t be quite as many starts as we’ve seen in 2005 and 2006. Planning demands will mean that schemes are concentrated in town centres and the edge of towns, rather than large out-of-town shopping parks. There will also be many substantial refits of existing stores. Budget and high-end stores are doing well, although the ones in the middle are feeling the chill of competion from online retailers.
On the other hand, if you’re involved in building sheds you can expect your workload to slacken off. Over-exuberance on the part of industrial developers has led to oversupply.
Large local authorities will be undertaking regeneration projects, and these will be attractive to private developers because of their long-term rental growth. Mat Oakley, Savills’ head of commercial research, says: “We’ve seen Ask Developments’ 9ha Central Spine in Manchester and the 170ha project in Eastside in Birmingham, and I wouldn’t be surprised if more strategic sites were announced over the next 12 months.”