Repair and maintain

Figures from the DETR1 for output and employment in the first quarter of 2000 show that the total volume of construction output continued to grow, up 3% on the previous quarter. This growth was attributed to new work and repair and maintenance, which both saw a rise of 3%.

Much of the growth was attributed to public and private housing and public housing repair and maintenance.

New work in the public housing sector continues its upward trend, 21% higher than the previous quarter, while repair and maintenance work (including improvement work) rose 6%.

New private housing work was up 16% compared with the previous quarter, with repair and maintenance work 3% higher than the fourth quarter of 1999.

Figures for the private industrial sector remained unchanged compared to the last quarter of 1999. Private commercial output was 3% up on the last quarter for 1999 and 13% higher than the same period a year ago. New work in the public non-housing sector (excluding infrastructure) in the first quarter of 2000 fell by 4%. Repair and maintenance also saw a drop of 1%.

Hewes & Associates2 predicts a modest growth in construction activity throughout 2000, increasing to 2% in 2001. This may grow by 3% in 2002 as the planned increases in public investment, outlined in the July 2000 Spending Review, are felt.

The volume of orders for 1999 fell by 9%, continuing in 2000 with the rate of descent estimated at 10% by the middle of the year. Overall, the volume of new work is forecast to decline by around 2% in 2000. This fall has partly been curbed by the assumption of growth in public sector workloads over the rest of the year.

New work in 2001 is expected to stabilise as public sector investment offsets private sector decline. The forecast for 2002 is for new work to grow by 2·2%.

Repair and maintenance offers more encouraging news, with a growth of around 12% expected during 2000 – 2002. The majority of this work is expected to come from the public sector, with residential and non-residential outputs also forecast to rise.

Public non-housing should benefit from an increase in Government funding and Hewes forecasts growth of 1·3% during 2000. The volume of work is forecast to increase by 15% over 2001 – 2002 as a result of the rises in investment.

Output in the industrial sector still faces a sharp downturn, with the volume of orders currently 25% below its 1997 peak. The strength of sterling is resulting in delays or cancellation of expansion plans for foreign-owned companies. Hewes does not expect to see any meaningful recovery in manufacturing output until early 2001. The volume of industrial building work is forecast to fall by close to 20% during 2000 – 2001.

The picture isn't much better for commercial construction; output is expected to stabilise in 2000, but the trend in orders points to an inevitable decline. Hewes predicts a fall in output close to 12% over 2001 – 2002.

Repair and maintenance offers more encouraging news with growth of around 12% expected during 2000 – 2002

Over the same period public residential and non-residential workloads are expected to rise by around 20% in volume. Over the short-term private non-residential output is expected to remain steady, with stronger growth in 2002.

Consultants' quarterly workload survey

BSRIA's quarterly workload survey3 of 126 consulting firms reveals that the building services workload has risen for the second consecutive quarter. This was largely attributed to increased activity in the commercial sector, in particular the increase in refurbishment and improvement works.

Another positive finding was the significant improvement in fee income, which has reached 1998 levels. This mirrors the increased workload of the first quarter of 2000. There may be an element of delayed payment in the first quarter of the year leading to a greater rise than is expected from the workload trend. An improvement in fee income was reported in line with the rise in workload. Investment in training was also reported to have increased.

Optimism in the retail sector has increased sharply, similar to the trend in 1999. The withdrawal of retailer C&A from the UK means that there will be several hundred prime retail sites up for refurbishment.

Following the optimism of the previous quarterly survey, the public sector saw an increase in activity as more education projects came on line. Again the recent spending commitments to infrastructure should result in an increase in building services work on the periphery. Industrial sector optimism is strong, put down to the rise in construction output for the fourth quarter. The office and leisure sectors, though, will remain relatively static.

Tender forecasts

Davis Langdon & Everest's tender price forecast4 shows that between April and June tender prices have continued to rise, although not as steeply as the previous two quarters. The rises are largely put down to labour costs, although margins throughout the supply chain have improved.

DL&E predicts that tender prices will continue to rise, 4% – 6% over the next 12 months, with the highest inflation expected in East Anglia and the South-West. Prices are expected to continue to rise by 4% – 5% during 2001 as long as health and education spending promises maintain the demand for construction services. In the year up to the second quarter of 2000 the mechanical cost index increased by 4·4% while the electrical cost index rose 5·8%.

According to DETR statistics the cost of heating and ventilating installation materials rose by 1·4% in the year to May 2000. Electrical installation materials fell by 0·4% over the same period. The decline in the value of sterling over the coming months should see some price increases as imported equipment such as air conditioning units and luminaires are affected by the exchange rate.

M&E workload is reported as being quite varied around the country, with competitive prices being received in some areas but difficult tendering conditions in others.

Construction Forecasting & Research5 found that balance on activity for the second quarter of this year turned more heavily negative, as did those for tender enquiries and order books. However, firms remain 'mildly optimistic' about short-term employment and are 'quite bullish' about tender price prospects. It predicts a modest increase in construction output for 2000 of 1·4%, 0·5% for new work and 2·5% for repair and maintenance. Over the year new housing work is expected to decline by 2%.

Tender enquiries for the East Midlands, South East and Wales saw positive improvements for June, however there was sharp decline for those in Scotland compared with May.

Glenigan Group's Trends bulletin6 says that industrial figures for June "perked up a little after the grisly performance in spring, but not enough to halt the decline in the 12 month moving average". Orders fell by 16% on the previous quarter, 35% down on the same period for 1999. The past 12 months have seen orders cut by 10% compared with the previous year and drop to a level 12% below the five-year average.

A similar pattern is reflected for work at tender stage, but at the plans approved stage things are "still gloomier, suggesting little comfort in the months ahead". On a more positive note the figures for the early planning stage look brighter, with work recorded over the past 12 months 30% up on the five-year average.

Glenigan reports commercial sector orders as being "subdued over the past three months". As the commercial market accounts for a third of the building sector, its "sluggishness" has contributed to the fall in figures. Comparisons of the last year with the previous 12 months shows a fall of 9%. Glenigan says this "suggests that the commercial sector will begin to see an easing in output growth. However, the level of orders remains 8% above the five-year average".

So how are things looking for the coming months? The consensus seems to be for a fall in the industrial and commercial sectors but an increase in activity for repair and maintenance. Steady growth looks set for the following 12 months, particularly in the public sector, with the July Spending Review providing some long-term encouragement.